G.R. No.

124050 June 19, 1997

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT, petitioners,
vs.
COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION,
respondents.

PUNO, J.:
This is a petition for review on certiorari to annul and set aside the Decision of respondent Court of Appeals dated December 14, 1995 1 and its
Resolution dated February 22, 1996 2 in CA-G.R. CV No. 45805 entitled Mayer Steel Pipe Corporation and Hongkong Government Supplies
Department v. South Sea Surety Insurance Co., Inc. and The Charter Insurance Corporation. 3
In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to
manufacture and supply various steel pipes and fittings. From August to October, 1983, Mayer shipped the pipes and fittings to Hongkong as
evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022. 4
Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private respondents South Sea Surety and Insurance Co.,
Inc. (South Sea) and Charter Insurance Corp. (Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total
amount of US$212,772.09 were insured with respondent South Sea, while those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of
US$149,470.00 were insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party inspector to examine whether the pipes and
fittings are manufactured in accordance with the specifications in the contract. Industrial Inspection certified all the pipes and fittings to be in good
order condition before they were loaded in the vessel. Nonetheless, when the goods reached Hongkong, it was discovered that a substantial portion
thereof was damaged.
Petitioners filed a claim against private respondents for indemnity under the insurance contract. Respondent Charter paid petitioner Hongkong the
amount of HK$64,904.75. Petitioners demanded payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes.
Private respondents refused to pay because the insurance surveyor's report allegedly showed that the damage is a factory defect.
On April 17, 1986, petitioners filed an action against private respondents to recover the sum of HK$299,345.30. For their defense, private
respondents averred that they have no obligation to pay the amount claimed by petitioners because the damage to the goods is due to factory defects
which are not covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to manufacturing defects. It also noted that the insurance
contracts executed by petitioner Mayer and private respondents are "all risks" policies which insure against all causes of conceivable loss or damage.
The only exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct on the part of the insured. The
dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the defendants jointly and severally, to pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30, with legal rate of interest as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED. 5
Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the damage is not due to factory defect and that it was covered by the "all risks"
insurance policies issued by private respondents to petitioner Mayer. However, it set aside the decision of the trial court and dismissed the complaint
on the ground of prescription. It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only on April
17, 1986, more than two years from the time the goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides
that "the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of
the goods or the date when the goods should have been delivered." Respondent court ruled that this provision applies not only to the carrier but also
to the insurer, citing Filipino Merchants Insurance Co., Inc. v. Alejandro. 6
Hence this petition with the following assignments of error:

1. The respondent Court of Appeals erred in holding that petitioners' cause of action had already prescribed on the mistaken
application of the Carriage of Goods by Sea Act and the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42);
and
2. The respondent Court of Appeals committed an error in dismissing the complaint. 7
The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged from all liability for loss or damage to the
goods if no suit is filed within one year after delivery of the goods or the date when they should have been delivered. Under this provision, only the
carrier's liability is extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished because the insurer's liability
is based not on the contract of carriage but on the contract of insurance. A close reading of the law reveals that the Carriage of Goods by Sea Act
governs the relationship between the carrier on the one hand and the shipper, the consignee and/or the insurer on the other hand. It defines the
obligations of the carrier under the contract of carriage. It does not, however, affect the relationship between the shipper and the insurer. The latter
case is governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro 8 and the other cases 9 cited therein does not support respondent court's view that
the insurer's liability prescribes after one year if no action for indemnity is filed against the carrier or the insurer. In that case, the shipper filed a
complaint against the insurer for recovery of a sum of money as indemnity for the loss and damage sustained by the insured goods. The insurer, in
turn, filed a third-party complaint against the carrier for reimbursement of the amount it paid to the shipper. The insurer filed the third-party
complaint on January 9, 1978, more than one year after delivery of the goods on December 17, 1977. The court held that the insurer was already
barred from filing a claim against the carrier because under the Carriage of Goods by Sea Act, the suit against the carrier must be filed within one
year after delivery of the goods or the date when the goods should have been delivered. The court said that "the coverage of the Act includes the
insurer of the goods." 10
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer which filed a claim against the carrier for
reimbursement of the amount it paid to the shipper. In the case at bar, it was the shipper which filed a claim against the insurer. The basis of the
shipper's claim is the "all risks" insurance policies issued by private respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper, the consignee or the insurer. When the court
said in Filipino Merchants that Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may
no longer file a claim against the carrier beyond the one-year period provided in the law. But it does not mean that the shipper may no longer file a
claim against the insurer because the basis of the insurer's liability is the insurance contract. An insurance contract is a contract whereby one party, for
a consideration known as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril. 11 An "all risks"
insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured. 12 Thus, when private respondents issued the
"all risks" policies to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation
prescribes in ten years, in accordance with Article 1144 of the New Civil Code. 13
IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appeals dated December 14, 1995 and its Resolution dated
February 22, 1996 are hereby SET ASIDE and the Decision of the Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.
G.R. No. 167330

June 12, 2008

PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CORONA, J.:
Is a health care agreement in the nature of an insurance contract and therefore subject to the documentary stamp tax (DST) imposed under Section
185 of Republic Act 8424 (Tax Code of 1997)?
This is an issue of first impression. The Court of Appeals (CA) answered it affirmatively in its August 16, 2004 decision 1 in CA-G.R. SP No. 70479.
Petitioner Philippine Health Care Providers, Inc. believes otherwise and assails the CA decision in this petition for review under Rule 45 of the Rules
of Court.
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate a prepaid group practice health care
delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for
the administrative, legal, and financial responsibilities of the organization." 2 Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists

and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by
it.3
The pertinent part of petitioner's membership or health care agreement 4 provides:
VII BENEFITS
Subject to paragraphs VIII [on pre-existing medical condition] and X [on claims for reimbursement] of this Agreement, Members shall
have the following Benefits under this Agreement:
In-Patient Services. In the event that a Member contract[s] sickness or suffers injury which requires confinement in a participating
Hospital[,] the services or benefits stated below shall be provided to the Member free of charge, but in no case shall [petitioner] be liable to
pay more than P75,000.00 in benefits with respect to anyone sickness, injury or related causes. If a member has exhausted such maximum
benefits with respect to a particular sickness, injury or related causes, all accounts in excess of P75,000.00 shall be borne by the enrollee. It
is[,] however, understood that the payment by [petitioner] of the said maximum in In-Patient Benefits to any one member shall preclude a
subsequent payment of benefits to such member in respect of an unrelated sickness, injury or related causes happening during the
remainder of his membership term.
(a) Room and Board
(b) Services of physician and/or surgeon or specialist
(c) Use of operating room and recovery room
(d) Standard Nursing Services
(e) Drugs and Medication for use in the hospital except those which are used to dissolve blood clots in the vascular systems (i.e.,
trombolytic agents)
(f) Anesthesia and its administration
(g) Dressings, plaster casts and other miscellaneous supplies
(h) Laboratory tests, x-rays and other necessary diagnostic services
(i) Transfusion of blood and other blood elements
Condition for in-Patient Care. The provision of the services or benefits mentioned in the immediately preceding paragraph shall be
subject to the following conditions:
(a) The Hospital Confinement must be approved by [petitioner's] Physician, Participating Physician or [petitioner's] Medical
Coordinator in that Hospital prior to confinement.
(b) The confinement shall be in a Participating Hospital and the accommodation shall be in accordance with the Member[']s
benefit classification.
(c) Professional services shall be provided only by the [petitioner's] Physicians or Participating Physicians.
(d) If discharge from the Hospital has been authorized by [petitioner's] attending Physician or Participating Physician and the
Member shall fail or refuse to do so, [petitioner] shall not be responsible for any charges incurred after discharge has been
authorized.
Out-Patient Services. A Member is entitled free of charge to the following services or benefits which shall be rendered or administered
either in [petitioner's] Clinic or in a Participating Hospital under the direction or supervision of [petitioner's] Physician, Participating
Physician or [petitioner's] Medical Coordinator.
(a) Gold Plan Standard Annual Physical Examination on the anniversary date of membership, to be done at [petitioner's]
designated hospital/clinic, to wit:
(i) Taking a medical history

(ii) Physical examination

(iii) Chest x-ray
(iv) Stool examination
(v) Complete Blood Count
(vi) Urinalysis
(vii) Fasting Blood Sugar (FBS)
(viii) SGPT
(ix) Creatinine
(x) Uric Acid
(xi) Resting Electrocardiogram
(xii) Pap Smear (Optional for women 40 years and above)
(b) Platinum Family Plan/Gold Family Plan and Silver Annual Physical Examination.
The following tests are to be done as part of the Member[']s Annual check-up program at [petitioner's] designated clinic, to wit:
1) Routine Physical Examination
2) CBC (Complete Blood Count)
* Hemoglobin * Hematocrit
* Differential * RBC/WBC
3) Chest X-ray
4) Urinalysis
5) Fecalysis
(c) Preventive Health Care, which shall include:
(i) Periodic Monitoring of Health Problems
(ii) Family planning counseling
(iii) Consultation and advices on diet, exercise and other healthy habits
(iv) Immunization but excluding drugs for vaccines used
(d) Out-Patient Care, which shall include:
(i) Consultation, including specialist evaluation
(ii) Treatment of injury or illness
(iii) Necessary x-ray and laboratory examination
(iv) Emergency medicines needed for the immediate

relief of symptoms
(v) Minor surgery not requiring confinement
Emergency Care. Subject to the conditions and limitations in this Agreement and those specified below, a Member is entitled to receive
emergency care [in case of emergency. For this purpose, all hospitals and all attending physician(s) in the Emergency Room automatically
become accredited. In participating hospitals, the member shall be entitled to the following services free of charge: (a) doctor's fees, (b)
emergency room fees, (c) medicines used for immediate relief and during treatment, (d) oxygen, intravenous fluids and whole blood and
human blood products, (e) dressings, casts and sutures and (f) x-rays, laboratory and diagnostic examinations and other medical services
related to the emergency treatment of the patient.] 5 Provided, however, that in no case shall the total amount payable by [petitioner] for said
Emergency, inclusive of hospital bill and professional fees, exceed P75,000.00.
If the Member received care in a non-participating hospital, [petitioner] shall reimburse [him] 6 80% of the hospital bill or the amount of
P5,000.00[,] whichever is lesser, and 50% of the professional fees of non-participating physicians based on [petitioner's] schedule of fees
provided that the total amount[,] inclusive of hospital bills and professional fee shall not exceed P5,000.00.
On January 27, 2000, respondent Commissioner of Internal Revenue sent petitioner a formal demand letter and the corresponding assessment notices
demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of
P224,702,641.18. The assessment represented the following:

Value Added Tax (VAT)

1996

1997

45,767,596.23

DST
P

54,738,434.03
P

100,506,030.26

55,746,352.19
68,450,258.73

124,196,610.92

The deficiency DST assessment was imposed on petitioner's health care agreement with the members of its health care program pursuant to Section
185 of the 1997 Tax Code which provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. - On all policies of insurance or bonds or obligations of the nature
of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the
business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire insurance), and all bonds, undertakings, or recognizances, conditioned for the
performance of the duties of any office or position, for the doing or not doing of anything therein specified, and on all obligations
guaranteeing the validity or legality of any bond or other obligations issued by any province, city, municipality, or other public body or
organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made or
renewed by any such person, company or corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on each
four pesos (P4.00), or fractional part thereof, of the premium charged. (emphasis supplied)
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a petition for review
in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision,7 the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is hereby ORDERED to
PAY the deficiency VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until fully paid
for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid for
the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997
deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from
collecting the said DST deficiency tax.
SO ORDERED.8
Respondent appealed the CTA decision to the CA9 insofar as it cancelled the DST assessment. He claimed that petitioner's health care agreement was
a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision.10 It held that petitioner's health care agreement was in the nature of a non-life insurance contract
subject to DST:

WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it cancelled and set aside the
1996 and 1997 deficiency documentary stamp tax assessment and ordered petitioner to desist from collecting the same is REVERSED and
SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and
1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248 and
249 of the Tax Code, until the same shall have been fully paid.
SO ORDERED.11
Petitioner moved for reconsideration but the CA denied it. Hence, this petition.
Petitioner essentially argues that its health care agreement is not a contract of insurance but a contract for the provision on a prepaid basis of medical
services, including medical check-up, that are not based on loss or damage. Petitioner also insists that it is not engaged in the insurance business. It is
a health maintenance organization regulated by the Department of Health, not an insurance company under the jurisdiction of the Insurance
Commission. For these reasons, petitioner asserts that the health care agreement is not subject to DST.
We do not agree.
The DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal
relationships through the execution of specific instruments. 12 It is an excise upon the privilege, opportunity, or facility offered at exchanges for the
transaction of the business.13 In particular, the DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or renewing
any policy of insurance (except life, marine, inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or
liability.
Under the law, a contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. 14 The event insured against must be designated in the contract and must either be unknown or
contingent.15
Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of Blue Cross Healthcare, Inc. v. Olivares,16 this Court
ruled that a health care agreement is in the nature of a non-life insurance policy.
Contrary to petitioner's claim, its health care agreement is not a contract for the provision of medical services. Petitioner does not actually provide
medical or hospital services but merely arranges for the same 17 and pays for them up to the stipulated maximum amount of coverage. It is also
incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner assumes the liability and
indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians). The term "loss or damage" is broad
enough to cover the monetary expense or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of sickness, injury or emergency
or his availment of so-called "out-patient services" (including physical examination, x-ray and laboratory tests, medical consultations, vaccine
administration and family planning counseling) is the contingent event which gives rise to liability on the part of the member. In case of exposure of
the member to liability, he would be entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated contingencies belies its
claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if they can be predicted at all.
Petitioner assumes the risk of paying for the costs of the services even if they are significantly and substantially more than what the member has
"prepaid." Petitioner does not bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar risk, that is,
among all the other members of the health care program. This is insurance.
Petitioner's health care agreement is substantially similar to that involved in Philamcare Health Systems, Inc. v. CA.18 The health care agreement in
that case entitled the subscriber to avail of the hospitalization benefits, whether ordinary or emergency, listed therein. It also provided for "out-patient
benefits" such as annual physical examinations, preventive health care and other out-patient services. This Court ruled in Philamcare Health Systems,
Inc.:
[T]he insurable interest of [the subscriber] in obtaining the health care agreement was his own health. The health care agreement was in
the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingency, the health care provider must pay for the same to the extent agreed
upon under the contract.19 (emphasis supplied)
Similarly, the insurable interest of every member of petitioner's health care program in obtaining the health care agreement is his own health. Under
the agreement, petitioner is bound to indemnify any member who incurs hospital, medical or any other expense arising from sickness, injury or other
stipulated contingency to the extent agreed upon under the contract.

Petitioner's contention that it is a health maintenance organization and not an insurance company is irrelevant. Contracts between companies like
petitioner and the beneficiaries under their plans are treated as insurance contracts. 20
Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity, or facility offered at exchanges for the transaction
of the business.21 It is an excise on the facilities used in the transaction of the business, separate and apart from the business itself.22
WHEREFORE, the petition is hereby DENIED. The August 16, 2004 decision of the Court of Appeals in CA-G.R. SP No. 70479 is AFFIRMED.
Petitioner is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency documentary stamp tax for 1996 and 1997,
respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000 until full payment thereof.
Costs against petitioner.
SO ORDERED.
G.R. No. 166245

April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.
DECISION
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004 Decision 1 of the Court of
Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on the insurance application be considered as approval of the
application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement denominated as Creditor
Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who
purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing
balance of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the Assured for the unpaid balance of
his loan with the Assured, and is accepted for Life Insurance coverage by the Company on its effective date is eligible for insurance under
the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration of good health shall be
required for all Lot Purchasers as part of the application. The Company reserves the right to require further evidence of insurability
satisfactory to the Company in respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of his loan (including arrears up to
but not exceeding 2 months) as reported by the Assured to the Company or the sum of P100,000.00, whichever is smaller. Such benefit
shall be paid to the Assured if the Lot Purchaser dies while insured under the Policy.

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the Company. 3
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of each
purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied by
submitting a letter dated December 29, 1982,4 containing a list of insurable balances of its lot buyers for October 1982. One of those included in the
list as "new business" was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuangs death. Attached to the claim were the
following documents: (1) Chuangs Certificate of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assureds Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit the following documents relative to its insurance claim
for Chuangs death: (1) Certificate of Claimant (with form attached); (2) Assureds Certificate (with form attached); (3) Application for Insurance
accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid balance of Chuang before his
death.
Eternal transmitted the required documents through a letter dated November 14, 1984, 7 which was received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latters insurance claim. This prompted Eternal to demand from
Philamlife the payment of the claim for PhP 100,000 on April 25, 1986. 8
In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter dated May 20, 1986, 9 a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Park in October 1982 for
the total maximum insurable amount of P100,000.00 each. No application for Group Insurance was submitted in our office prior to his
death on August 2, 1984.
In accordance with our Creditors Group Life Policy No. P-1920, under Evidence of Insurability provision, "a declaration of good health
shall be required for all Lot Purchasers as party of the application." We cite further the provision on Effective Date of Coverage under the
policy which states that "there shall be no insurance if the application is not approved by the Company." Since no application had been
submitted by the Insured/Assured, prior to his death, for our approval but was submitted instead on November 15, 1984, after his death, Mr.
John Uy Chuang was not covered under the Policy. We wish to point out that Eternal Gardens being the Assured was a party to the Contract
and was therefore aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not connote our approval per se of the insurance coverage but are held by us in trust
for the payor until the prerequisites for insurance coverage shall have been met. We will however, return all the premiums which have been
paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife, docketed as Civil Case
No. 14736. The trial court decided in favor of Eternal, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against Defendant PHILAMLIFE,
ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the Policy of John Uy Chuang, plus
legal rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorneys fees.
SO ORDERED.
The RTC found that Eternal submitted Chuangs application for insurance which he accomplished before his death, as testified to by Eternals witness
and evidenced by the letter dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance Application Forms & Cert." 10 It further
ruled that due to Philamlifes inaction from the submission of the requirements of the group insurance on December 29, 1982 to Chuangs death on
August 2, 1984, as well as Philamlifes acceptance of the premiums during the same period, Philamlife was deemed to have approved Chuangs
application. The RTC said that since the contract is a group life insurance, once proof of death is submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED and SET ASIDE, and the
complaint is DISMISSED. No costs.
SO ORDERED.11

The CA based its Decision on the factual finding that Chuangs application was not enclosed in Eternals letter dated December 29, 1982. It further
ruled that the non-accomplishment of the submitted application form violated Section 26 of the Insurance Code. Thus, the CA concluded, there being
no application form, Chuang was not covered by Philamlifes insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not therefore determined by this Honorable Court, or has decided it
in a way not in accord with law or with the applicable jurisprudence, in holding that:
I. The application for insurance was not duly submitted to respondent PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.
The Courts Ruling
As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first level courts, considering their
findings of facts are conclusive and binding on this Court. However, such rule is subject to exceptions, as enunciated in Sampayan v. Court of
Appeals:
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when
the findings of facts are conflicting; (6) when in making its findings the [CA] went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7) when the findings [of the CA] are contrary to the trial court; (8)
when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition
as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion. 12 (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy of the insurance application of
Chuang before his death. In Eternals letter dated December 29, 1982, a list of insurable interests of buyers for October 1982 was attached, including
Chuang in the list of new businesses. Eternal added it was noted at the bottom of said letter that the corresponding "Phil-Am Life Insurance
Application Forms & Cert." were enclosed in the letter that was apparently received by Philamlife on January 15, 1983. Finally, Eternal alleged that it
provided a copy of the insurance application which was signed by Chuang himself and executed before his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must present evidence showing that
Philamlife received a copy of Chuangs insurance application.
The evidence on record supports Eternals position.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the insurance forms for the attached
list of burial lot buyers were attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the letter together with the
attachments. Such receipt is an admission by Philamlife against its own interest. 13 The burden of evidence has shifted to Philamlife, which must prove
that the letter did not contain Chuangs insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to have received
Chuangs insurance application.
To reiterate, it was Philamlifes bounden duty to make sure that before a transmittal letter is stamped as received, the contents of the letter are correct
and accounted for.
Philamlifes allegation that Eternals witnesses ran out of credibility and reliability due to inconsistencies is groundless. The trial court is in the best
position to determine the reliability and credibility of the witnesses, because it has the opportunity to observe firsthand the witnesses demeanor,
conduct, and attitude. Findings of the trial court on such matters are binding and conclusive on the appellate court, unless some facts or circumstances
of weight and substance have been overlooked, misapprehended, or misinterpreted, 14 that, if considered, might affect the result of the case. 15
An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as shown by the testimony of
Edilberto Mendoza:
Atty. Arevalo:

Q Where is the original of the application form which is required in case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of this is submitted to
Philamlife together with the monthly remittances and the second copy is remained or retained with the marketing department of Eternal
Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does not [ask] for the number of
copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted with that payment together with the new clients all the
originals I see to it before I sign the transmittal letter the originals are attached therein. 16
In other words, the witness admitted not knowing where the original insurance application was, but believed that the application was transmitted to
Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance application forms were accomplished
and the testimony of Mendoza on who actually filled out the application form, these are minor inconsistencies that do not affect the credibility of the
witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies are too trivial to affect the credibility of witnesses, and these may even
serve to strengthen their credibility as these negate any suspicion that the testimonies have been rehearsed. 17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecutions evidence as a whole or reflect on the
witnesses honesty. The test is whether the testimonies agree on essential facts and whether the respective versions corroborate and
substantially coincide with each other so as to make a consistent and coherent whole. 18
In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is whether the insurance
application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the credibility of
Eternals witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated December 10, 1980.
In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the Company.
An examination of the above provision would show ambiguity between its two sentences. The first sentence appears to state that the insurance
coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the second sentence appears to require
Philamlife to approve the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly
against the insurer in order to safeguard the latters interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of
the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par

excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the
insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from noncompliance with its obligations. 19 (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly
against the party which prepared the contract, the insurer. By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured,
especially to avoid forfeiture. 20
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be construed in favor of the
insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a partys purchase of a memorial lot on installment
from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife
by disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the
nature of a resolutory condition which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the
insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination of
the insurance contract by the insurer must be explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts are wholly
prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage. More often than not, insurance contracts
are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed
on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies
must be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as
a valid, binding, and effective insurance contract. 21
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The
May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of extra-judicial demand by Eternal
until Philamlifes receipt of the May 29, 1996 RTC Decision on June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 until full payment of this
award; and
(4) To pay Eternal attorneys fees in the amount of PhP 10,000.
No costs.
SO ORDERED.
G.R. No. 91666 July 20, 1990
WESTERN GUARANTY CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS, PRISCILLA E. RODRIGUEZ, and DE DIOS TRANSPORTATION CO., INC., respondents.
Narciso E. Ramirez for petitioner.
Alejandro Z. Barin and Carlos C. Fernando for private respondent.

FELICIANO, J.:

At around 4:30 in the afternoon of 27 March 1982, while crossing Airport Road on a pedestrian lane on her way to work, respondent Priscilla E.
Rodriguez was struck by a De Dios passenger bus owned by respondent De Dios Transportation Co., Inc., then driven by one Walter Saga y Aspero
The bus driver disregarded the stop signal given by a traffic policeman to allow pedestrians to cross the road. Priscilla was thrown to the ground,
hitting her forehead. She was treated at the Protacio Emergency Hospital and later on hospitalized at the San Juan De Dios Hospital. Her face was
permanently disfigured, causing her serious anxiety and moral distress. Respondent bus company was insured with petitioner Western Guaranty
Corporation ("Western") under its Master Policy which provided, among other things, for protection against third party liability, the relevant section
reading as follows:
Section 1. Liability to the Public Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability
of the insured in respect of
(a) death of or bodily injury to or damage to property of any passenger as defined herein.
(b) death of or bodily injury or damage to property of any THIRD PARTY as defined herein in any accident caused by or arising
out of the use of the Schedule Vehicle, provided that the liability shall have first been determined. In no case, however, shall the
Company's total payment under both Section I and Section 11 combined exceed the Limits of Liability set forth herein. With
respect to death of or bodily injury to any third party or passenger, the company's payment per victim in any one accident shall
not exceed the limits indicated in the Schedule of indemnities provided for in this policy excluding the cost of additional
medicines, and such other burial and funeral expenses that might have been incurred. (Emphasis supplied)
Respondent Priscilla Rodriguez filed a complaint for damages before the Regional Trial Court of Makati against De Dios Transportation Co. and
Walter A. Saga Respondent De Dios Transportation Co., in turn, filed a third-party complaint against its insurance carrier, petitioner Western. On 6
August 1985, the trial court rendered a decision in favor of respondent Priscilla E. Rodriguez, the dispositive portion of which read:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendants, ordering the latter to pay the former,
jointly and severally, and for the third-party defendant to pay to the plaintiff, by way of contribution, indemnity or subrogation
whatever amount may be left unpaid by the defendant De Dios Transportation Company, Inc. to the extent of not more than
P50,000.00, as follows:
a) The sum of P2,776.00 as actual damages representing doctor's fees, hospitalization and medicines;
b) the sum of P1,500.00 by way of compensation for loss of earning during plaintiffs incapacity to work;
c) the sum of P10,000.00 as and by way of moral damages ;
d) the sum of P10,000.00 as and by way of attorney's fees ;and
e) the cost of suit.
On appeal, the Court of Appeals affirmed in toto the decision of the trial court. Petitioner moved for the reconsideration of the appellate court's
decision. In a Resolution dated 10 January 1990, the Court of Appeals denied the motion for reconsideration petition for lack of merit.
Petitioner Western is now before us on a Petition for Review alleging that the Court of Appeals erred in holding petitioner liable to pay beyond the
limits set forth in the Schedule of Indemnities and in finding Western liable for loss of earnings, moral damages and attorney's fees. Succinctly stated,
it is petitioner Western's position that it cannot be held liable for loss of earnings, moral damages and attorney's fees because these items are not
among those included in the Schedule of Indemnities set forth in the insurance policy.
Deliberating on the instant Petition for Review, we consider that petitioner Western has failed to show any reversible error on the part of the Court of
Appeals in rendering its Decision dated 26 April 1989 and its Resolution dated 10 January 1990.
An examination of Section 1 entitled "Liability to the Public", quoted above, of the Master Policy issued by petitioner Western shows that that
Section defines the scope of the liability of insurer Western as well as the events which generate such liability. The scope of liability of Western is
marked out in comprehensive terms: "all sums necessary to discharge liability of the insured in respect of [the precipitating events]" The
precipitating events which generate liability on the part of the insurer, either in favor of a passenger or a third party, are specified in the following
terms: (1) death of, or (2) bodily injury to, or (3) damage to property of, the passenger or the third party. Where no death, no bodily injury and no
damage to property resulted from the casualty ("any accident caused by or arising out of the use of the Schedule Vehicle"), no liability is created so
far as concerns the insurer, petitioner Western.
The "Schedule of Indemnities for Death and/or Bodily Injury" attached to the Master Policy, which petitioner Western invokes, needs to be quoted in
full:
Schedule of Indemnities for Death and/or Bodily Injury:

The following schedule of indemnities should be observed in the settlement of claims for death, bodily injuries of, professional fees and hospital
charges, for services rendered to traffic accident victims under CMVLI coverage:
DEATH INDEMNITY
P12,000.00
PERMANENT
DISABLEMENT

DESCRIPTION OF
DISABLEMENT

Amount

Loss of two limbs

P6,000.00

Loss of both hands, or

all fingers and

both thumbs

6,000.00

Loss of both feet

6,000.00

Loss of one hand and

one foot

6,000.00

Loss of sight of both

eyes

6,000.00

Injuries resulting in
being permanently

bedridden

6,000.00

Any other injury

causing permanent

total disablement

6,000.00

Loss of arm or above

elbow

4,200.00

Loss of arm between

elbow and wrist

3,000.00

Loss of hand

P2,550.00

Loss of four fingers

and thumb of one hand

2,550.00

Loss of four fingers

2,100.00

Loss of leg at or above

knee

3,600.00

Loss of leg below knee

2,400.00

Loss of one foot

2,400.00

Loss of toes-all of one

foot

900.00

Loss of thumb

900.00

Loss of index finger

600.00

Loss of sight of one

eye

1,800.00

Loss of hearing both

ears

3,000.00

Loss of hearing-one ear

450.00

Total of Accommodation of Professional Attendance

Extended

Services
Rendered

Fees or
Charges

HOSPITAL ROOM

Maximum
of 45
days/year-

P
36.00/day

Laboratory
fees, drugs

x-rays, etc.
300.0 0

SURGICAL

Major
Operation

1,000.00

EXPENSES

Medium
Operation

500.00

Minor
Operation

ANAESTHESIOLOGIST

Major
Operation
300.00

LOGISTS' FEES

Medium
Operation
150.00

100.00

Minor
Operation
50.00

OPERATING

Major
Operation

150.00

ROOM

Medium
Operation

100.00

Minor
Operation

40.00

MEDICAL

For daily
visits of

EXPENSES

Practitioner
or

20.00

Specialist

/day

Total amount
of medical

expenses must
not exceed

(for single
period of

confinement)

400.00
1

It will be seen that the above quoted Schedule of Indemnities establishes monetary limits which Western may invoke in case of occurrence of the
particular kinds of physical injury there listed, e.g.:

loss of
both feet

P6,000.00;

loss of one
foot

P2,400.00;

loss of
sight of
one eye

P1,800.00;

It must be stressed, however, that the Schedule of Indemnities does not purport to limit, or to enumerate exhaustively, the species of bodily injury
occurrence of which generate liability for petitioner Western. A car accident may, for instance, result in injury to internal organs of a passenger or
third party, without any accompanying amputation or loss of an external member (e.g., a foot or an arm or an eye). But such internal injuries are
surely covered by Section I of the Master Policy, since they certainly constitute bodily injuries.
Petitioner Western in effect contends before this Court, as it did before the Court of Appeals, that because the Schedule of Indemnities limits the
amount payable for certain kinds of expenses "hospital room", "surgical expenses", "anaesthesiologists' fee", "operating room" and "medical
expenses" that Schedule should be read as excluding liability for any other type of expense or damage or loss even though actually sustained or
incurred by the third party victim. We are not persuaded by Western's contention.
Firstly, the Schedule of Indemnities does not purport to restrict the kinds of damages that may be awarded against Western once liability has arisen.
Section 1, quoted above, does refer to certain "Limits of Liability" which in the case of the third party liability section of the Master Policy, is
apparently P50,000.00 per person per accident. Within this over-all quantitative limit, all kinds of damages allowable by law" actual or
compensatory damages"; "moral damages'; "nominal damages"; "temperate or moderate damages"; "liquidated damages"; and "exemplary damages"
2
may be awarded by a competent court against the insurer once liability is shown to have arisen, and the essential requisites or conditions for
grant of each species of damages are present. It appears to us self-evident that the Schedule of Indemnities was not intended to be an enumeration,
much less a closed enumeration, of the specific kinds of damages which may be awarded under the Master Policy Western has issued. Accordingly,
we agree with the Court of Appeals that:
... we cannot agree with the movant that the schedule was meant to be an exclusive enumeration of the nature of the damages for
which it would be liable under its policy. As we see it, the schedule was merely meant to set limits to the amounts the movant
would be liable for in cases of claims for death, bodily injuries of, professional services and hospital charges, for services
rendered to traffic accident victims,' and not necessarily exclude claims against the insurance policy for other kinds of damages,
such as those in question.
Secondly, the reading urged by Western of the Schedule of Indemnities comes too close to working fraud upon both the insured and the third party
beneficiary of Section 1, quoted above. For Western's reading would drastically and without warning limit the otherwise unlimited (save for the overall quantitative limit of liability of P50,000.00 per person per accident) and comprehensive scope of liability assumed by the insurer Western under
Section 1: "all sums necessary to discharge liability of the insured in respect of [bodily injury to a third party]". This result- which is not essentially
different from taking away with the left hand what had been given with the right hand we must avoid as obviously repugnant to public policy. If what
Western now urges is what Western intended to achieve by its Schedule of Indemnities, it was incumbent upon Western to use language far more
specific and precise than that used in fact by Western, so that the insured, and potential purchasers of its Master Policy, and the Office of the
Insurance Commissioner, may be properly informed and act accordingly.
Petitioner Western would have us construe the Schedule of Indemnities as comprising contractual limitations of liability which, as already noted, is
comprehensively defined in Section 1 Liability to the Public" of the Master Policy. It is wellsettled, however, that contractual limitations of
liability found in insurance contracts should be regarded by courts with a jaundiced eye and extreme care and should be so construed as to preclude
the insurer from evading compliance with its just obligations. 3
Finally, an insurance contract is a contract of adhesion. The rule is well entrenched in our jurisprudence that the terms of such contract are to be
construed strictly against the party which prepared the contract, which in this case happens to be petitioner Western. 4
ACCORDINGLY, the Court Resolved to DENY the Petition for Review for lack of merit Costs against petitioner.
G.R. No. L-31845 April 30, 1979
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.

G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p. 58), because
the petitioners in both cases seek similar relief, through these petitions for certiorari by way of appeal, from the amended decision of respondent
Court of Appeals which affirmed in toto the decision of the Court of First Instance of Cebu, ordering "the defendants (herein petitioners Great Pacific
Ligfe Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein private respondent Ngo Hing) the amount of P50,000.00
with interest at 6% from the date of the filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company (hereinafter
referred to as Pacific Life) for a twenty-year endownment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Said
respondent supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the application form which was signed by
private respondent Ngo Hing. The latter paid the annual premuim the sum of P1,077.75 going over to the Company, but he reatined the amount of
P1,317.00 as his commission for being a duly authorized agebt of Pacific Life. Upon the payment of the insurance premuim, the binding deposit
receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the insurance application. Then on April 30, 1957, Mondragon received a letter from
Pacific Life disapproving the insurance application (Exhibit 3-M). The letter stated that the said life insurance application for 20-year endowment
plan is not available for minors below seven years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that
if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner Mondragon to private respondent Ngo Hing.
Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year endowment insurance plan to
children, pointing out that since 1954 the customers, especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication of bronchopneumonia. Thereupon, private
respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the same before
the Court of First Instance of Cebu, which rendered the adverse decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life insurance in
question; and (2) whether private respondent Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void the
aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium deposit ... and the insurance application, ON or PRIOR to the
date of medical examination ... said insurance shan be in force and in effect from the date of such medical examination, for such
period as is covered by the deposit ..., PROVIDED the company shall be satisfied that on said date the applicant was insurable
on standard rates under its rule for the amount of insurance and the kind of policy requested in the application.
D. If the Company does not accept the application on standard rate for the amount of insurance and/or the kind of policy
requested in the application but issue, or offers to issue a policy for a different plan and/or amount ..., the insurance shall not be
in force and in effect until the applicant shall have accepted the policy as issued or offered by the Company and shall have paid
the full premium thereof. If the applicant does not accept the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above, and the Company declines to approve the application
the insurance applied for shall not have been in force at any time and the sum paid be returned to the applicant upon the
surrender of this receipt. (Emphasis Ours).

The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be merely a provisional or temporary insurance
contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard
rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be
binding until the applicant accepts the policy offered; otherwise, the deposit shall be reftmded; and (3) that if the applicant is not ble according to the
standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid shall be
returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company,
that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard
rates." Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the binding deposit receipt in question had never
become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure outright. As held by this Court,
where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by
the agent. The acceptance is merely conditional and is subordinated to the act of the company in approving or rejecting the application. Thus, in life
insurance, a "binding slip" or "binding receipt" does not insure by itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance application
in question on the ground that it is not offering the twenty-year endowment insurance policy to children less than seven years of age. What it offered
instead is another plan known as the Juvenile Triple Action, which private respondent failed to accept. In the absence of a meeting of the minds
between petitioner Pacific Life and private respondent Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of
the latter's one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there
could have been no insurance contract duly perfected between thenl Accordingly, the deposit paid by private respondent shall have to be refunded by
Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other contracts, must be assented to by both
parties either in person or by their agents ... The contract, to be binding from the date of the application, must have been a completed contract, one
that leaves nothing to be dione, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in agreement."
We are not impressed with private respondent's contention that failure of petitioner Mondragon to communicate to him the rejection of the insurance
application would not have any adverse effect on the allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In this first place, there
was no contract perfected between the parties who had no meeting of their minds. Private respondet, being an authorized insurance agent of Pacific
Life at Cebu branch office, is indubitably aware that said company does not offer the life insurance applied for. When he filed the insurance
application in dispute, private respondent was, therefore, only taking the chance that Pacific Life will approve the recommendation of Mondragon for
the acceptance and approval of the application in question along with his proposal that the insurance company starts to offer the 20-year endowment
insurance plan for children less than seven years. Nonetheless, the record discloses that Pacific Life had rejected the proposal and recommendation.
Secondly, having an insurable interest on the life of his one-year old daughter, aside from being an insurance agent and an offense associate of
petitioner Mondragon, private respondent Ngo Hing must have known and followed the progress on the processing of such application and could not
pretend ignorance of the Company's rejection of the 20-year endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate Associate Justice Ruperto G. Martin who later came
up to this Court, from his dissenting opinion to the amended decision of the respondent court which completely reversed the original decision, the
following:
Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-M) nor the reply thereto of appellant
Mondragon reiterating the desire for applicant's father to have the application considered as one for a 20-year endowment plan
was ever duly communicated to Ngo; Hing, father of the minor applicant. I am not quite conninced that this was so. Ngo Hing, as
father of the applicant herself, was precisely the "underwriter who wrote this case" (Exhibit H-1). The unchallenged statement of
appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our associate" and
that it was the latter who "insisted that the plan be placed on the 20-year endowment plan." Under these circumstances, it is
inconceivable that the progress in the processing of the application was not brought home to his knowledge. He must have been
duly apprised of the rejection of the application for a 20-year endowment plan otherwise Mondragon would not have asserted that
it was Ngo Hing himself who insisted on the application as originally filed, thereby implictly declining the offer to consider the
application under the Juvenile Triple Action Plan. Besides, the associate of Mondragon that he was, Ngo Hing should only be
presumed to know what kind of policies are available in the company for minors below 7 years old. What he and Mondragon
were apparently trying to do in the premises was merely to prod the company into going into the business of issuing endowment
policies for minors just as other insurance companies allegedly do. Until such a definite policy is however, adopted by the
company, it can hardly be said that it could have been bound at all under the binding slip for a plan of insurance that it could not
have, by then issued at all. (Amended Decision, Rollo, pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private respondent had deliberately concealed the state of
health and piysical condition of his daughter Helen Go. Wher private regpondeit supplied the required essential data for the insurance application
form, he was fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital physical defect could never be ensconced
nor disguished. Nonetheless, private respondent, in apparent bad faith, withheld the fact materal to the risk to be assumed by the insurance compary.

As an insurance agent of Pacific Life, he ought to know, as he surely must have known. his duty and responsibility to such a material fact. Had he
diamond said significant fact in the insurance application fom Pacific Life would have verified the same and would have had no choice but to
disapprove the application outright.
The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and perfect candor or openness and honesty; the
absence of any concealment or demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but equally so for the insurer (Field
man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a partY knows aDd Ought to
communicate (Section 25, Act No. 2427). Whether intentional or unintentional the concealment entitles the insurer to rescind the contract of
insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American Life Insurance Company, 7
SCRA 316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was perfected between the parties with the noncompliance of the conditions provided in
the binding receipt, and concealment, as legally defined, having been comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby entered absolving petitioners Lapulapu D.
Mondragon and Great Pacific Life Assurance Company from their civil liabilities as found by respondent Court and ordering the aforesaid insurance
company to reimburse the amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against private respondent.
SO ORDERED.
G.R. No. 96727 August 28, 1996
RIZAL SURETY & INSURANCE COMPANY, petitioner,
vs.
COURT OF APPEALS and TRANSOCEAN TRANSPORT CORPORATION, respondents.

PANGANIBAN, J.:p
Was a trust relationship established between an insurer and the two insureds over the balance of the insurance proceeds being held by the insurer for
the account of the two insureds, pending a final settlement by and between the two insureds of their respective claims to said proceeds? Can the
insurer whether or not considered a trustee be held liable for interest on the said insurance proceeds, which proceeds the said insurer failed or
neglected to deposit in an interest-bearing account, contrary to the specific written instructions of the two insureds? And should attorney's fees be
awarded in this case?
These questions confronted the Court in resolving the instant petition for review on certiorari, which assailed the Decision 1 of the Court of Appeals 2
promulgated October 25, 1990 affirming and modifying the decision 3 dated September 19, 1986 of the Regional Trial Court of Manila, Branch 33, 4
in Civil Case No. 125886.
The Facts
As culled from the stipulations between the parties and the assailed Decision, the factual background of this case is as follows:
On December 5, 1961, the Reparations Commission (hereinafter referred to as REPACOM) sold to private respondent Transocean Transport
Corporation the vessel 'M/V TRANSOCEAN SHIPPER' payable in twenty (20) annual installments. On June 22, 1974, the said vessel was insured
with petitioner Rizal Surety & Insurance Company for US$3,500,000.00, with stipulated value in Philippine Currency of P23,763,000.00 under
Marine Hull Policy MH-1322 and MH-1331. 5 The said policies named REPACOM and herein private respondent as the insured. Subsequently,
petitioner reinsured the vessel with a foreign insurance firm.
Sometime in February, 1975, during the effectivity of the aforementioned marine insurance policies, the vessel 'M/V TRANSOCEAN SHIPPER' was
lost in the Mediterranean Sea. The insured filed claims against herein petitioner for the insurance proceeds. Shortly thereafter, a partial compromise
agreement was entered into between the REPACOM and respondent Transocean regarding the insurance proceeds.
On April 18, 1975, anticipating payment of the insurance proceeds in dollars, private respondent requested the Central Bank (CB) to allow it to retain
the expected dollar insurance proceeds for a period of three (3) months, to enable it to complete its study and decide on how to utilize the said amount
6
. The CB granted the request subject to conditions, one of which was that the proceeds be deposited with a local commercial bank in a special dollar
account up to and until July 31, 1975. 7
On November 18, 1975, private respondent and REPACOM requested petitioner to pay the insurance proceeds in their joint names, 8 despite
problems regarding the amount of their respective claims.

On November 20, 1975, the CB authorized petitioner to receive the insurance proceeds from the English re-insurance firm in foreign currency and to
deposit it in the same currency with any local bank in a non-interest bearing account, jointly in the names of private respondent and REPACOM. 9
On December 2, 1975, upon the request of petitioner, 10 CB authorized it to receive and deposit the dollar insurance proceeds in a non-interest bearing
account in the name of petitioner and for the joint account of REPACOM and private respondent. 11
On January 3, 1976, petitioner informed private respondent and REPACOM that the entire insurance proceeds for the loss of the vessel M/V
"Transocean Shipper", consisting of: (a) P2,614,150.00 from local insurance companies and reinsurers, and (b) US$3,083,850.00 from the petitioner's
London insurance broker, had been deposited with Prudential Bank and Trust Company, Escolta Branch, Manila, the latter sum in a non-interest
bearing account as authorized by CB. 12
On January 29, 1976, private respondent and REPACOM entered into a partial compromise agreement, 13 wherein they agreed to divide and distribute
the insurance proceeds in such a manner that each would receive as its initial share thereof that portion not disputed by the other party (thus,
REPACOM US$434,618.00, and private respondent US$1,931,153.00), leaving the balance in dispute for future settlement, either by way of
compromise agreement or court litigation, pending which the said balance would continue to be kept in the same bank account in trust for private
respondent and REPACOM unless the parties otherwise agree to transfer said balance to another bank account. Copies of this compromise agreement
were sent to petitioner.
In response to the March 10, 1976 letter-request of the parties, the CB on March 15, 1976 authorized private respondent and REPACOM to transfer
the balance of the insurance proceeds, amounting to US$718,078.20, into an interest-bearing special dollar account with any local commercial bank.
14
The CB's letter-authorization was addressed to REPACOM, with private respondent and petitioner duly copy-furnished.
Having obtained the CB authorization, REPACOM and private respondent then wrote the petitioner on April 21, 1976, requesting the latter to remit
the said US$718,078.20 to the Philippine National Bank, Escolta Branch for their joint account. 15
In a reply dated May 10, 1976, petitioner indicated that it would effect the requested remittance when both REPACOM and private respondent shall
have unconditionally and absolutely released petitioner from all liabilities under its policies by executing and delivering the Loss and Subrogation
Receipt prepared by petitioner. 16
Because the parties proposed certain amendments and corrections to the Loss and Subrogation Receipt, a revised version thereof was finally
presented to the Office of the Solicitor General, and on May 25, 1977, then Acting Solicitor General Vicente V. Mendoza wrote petitioner demanding
that it pay interest on the dollar balance per the CB letter-authority. His letter read in relevant part. 17
From the foregoing, it is clear that effective as of the date of your receipt of a copy of the letter of the Central Bank authorizing
the deposit of the amount in an interest-bearing special dollar account . . . , the same should bear interest at the authorized rates,
and it was your duty as trustee of the said funds to see to it that the same earned the interest authorized by the Central Bank. As
trustee, you were morally and legally bound to deposit the funds under terms most advantageous to the beneficiaries. If you did
not wish to transfer the deposit from the Prudential Bank and Trust Company, which we understand is your sister company, to
another bank where it could earn interest, it was your obligation to require the Prudential Bank and Trust Company, at least, to
place the deposit to an interest-bearing account.
In view hereof, we hereby demand in behalf of the Reparations Commission payment of interest on the dollar deposit from the
date of your receipt of the authorization by the Central Bank at the authorized rates.
In a reply dated June 14, 1977, petitioner through counsel rejected the Acting Solicitor General's demand, asserting that (i) there was no trust
relationship, express or implied, involved in the transaction; (ii) there was no obligation on the part of petitioner to transfer the dollar deposit into an
interest-bearing account because the CB authorization was given to REPACOM and not to petitioner, (iii) REPACOM did not ask petitioner to place
the dollars in an interest-bearing account, and, (iv) no Loss and Subrogation Receipt was executed.
On October 10, 1977, private respondent and REPACOM sent petitioner the duly executed Loss and Subrogation Receipt, dated January 31, 1977,
without prejudice to their claim for interest on the dollar balance from the time CB authorized its placement in an interest bearing account.
On February 27, 1978, a final compromise agreement 18 was entered into between private respondent and REPACOM, whereby the latter, in
consideration of an additional sum of one million pesos paid to it by the former, transferred, conveyed and assigned to the former all its rights,
interests and claims in and to the insurance proceeds. The dollar balance of the insurance proceeds was then remitted to the Philippine National Bank,
Escolta branch for the sole account of private respondent.
On April 14, 1978, a demand letter for interest on the said dollar balance was sent by private respondent's counsel to petitioner and Prudential Bank,
which neither replied thereto nor complied therewith.
On August 15, 1979, private respondent filed with the Regional Trial Court of Manila, Branch 33, a complaint for collection of unearned interest on
the dollar balance of the insurance proceeds.

On September 19, 1986, the trial court issued its decision holding that (i) a trust relationship existed between petitioner as trustee and private
respondent and REPACOM as beneficiaries, (ii) from April 21, 1976, petitioner should have deposited the remaining dollar deposit in an interestbearing account either by remitting the same to the PNB in compliance with the request of REPACOM and private respondent, or by transferring the
same into an interest-bearing account with Prudential Bank, and (iii) this duty to deposit the funds in an interest-bearing account ended when private
respondent signed the Loss and Subrogation Receipt on January 31, 1977. Thus, petitioner was ordered to pay (1) interest on the balance of
US$718,078.20 at 6% per annum, computed from April 21, 1976 until January 31, 1977 based on the then prevailing peso-dollar rate of exchange;
(2) interest of 6% per annum on the accrued interest earned until fully paid; (3) 10% of the total amount claimed as attorney's fees and (4) costs of
suit. 19 The complaint against defendant Prudential Bank and Trust was dismissed for lack of merit.
Both petitioner and private respondent appealed the trial court's decision. Private respondent alleged that the trial court erred when it absolved
defendant Prudential Bank from liability and when it ruled that the interest on the balance of the dollar deposit, for which petitioner was held liable,
should be computed only until January 31, 1977 (when the Loss and Subrogation Receipt was signed) instead of January 10, 1978 (when the actual
transfer of the dollar deposit was made to the bank chosen by private respondent). 20 On the other hand, petitioner charged that the trial court had
seriously erred in finding that a trust relationship, existed and that petitioner was liable for the interest on the dollar balance despite the execution of
the Loss and Subrogation Receipt wherein petitioner was unconditionally and absolutely released from all its liabilities under the marine hull
policies. 21
On October 25, 1990, the Court of Appeals upheld the judgment of the trial court, and confirmed that a trust had in fact been established and that
petitioner became liable for interest on the dollar account in its capacity as trustee, not as insurer. As for the Loss and Subrogation document, the
appellate Court ruled that petitioner gave undue importance thereto, and that the execution thereof did not bar the claims for accrued interest. By
virtue of that document, petitioner was released only from its liabilities arising from the insurance policies, i.e., in respect of the principal amount
representing the insurance proceeds, but not insofar as its liability for accrued interest was concerned, which arose from the violation of its duty as
trustee i.e., its refusal to deposit the dollar balance in an interest-bearing account, under terms most advantageous to the beneficiaries. The
respondent Court modified the trial court's judgment by ordering petitioner to pay said interest computed from April 21, 1976 up to January 10, 1978.
On December 17, 1990, the Court of Appeals denied the petitioner's motion for reconsideration.
Hence, this petition.
Assignment of Errors
Petitioner alleges that the Court of Appeals erred:
I. . . . when it held that Rizal is liable to Transocean for supposed interest on the balance of US$718,078.20 after admitting that
Transocean and REPACOM had unconditionally and absolutely released and discharged Rizal from its total liabilities when they
signed the loss and subrogation receipt . . . on January 31, 1977;
II. . . . in assuming that REPACOM and Transocean on one hand and Rizal, on the other, intended to create a trust;
III. . . . in not holding that Transocean had acted in palpable bad faith and with malice in filing this clearly unfounded civil action,
and in not ordering Transocean to pay to Rizal moral and punitive damages . . . , plus attorney's fees and expenses of litigation . . .
; and
IV. . . . in affirming the RTC decision which incorrectly awarded attorney's fees and costs of suit to Transocean. 22
The foregoing grounds are almost exactly the same grounds pleaded by petitioner before the respondent Court. At the heart of the matter is the
question of whether the petitioner is liable for accrued interest on the dollar balance of the insurance proceeds. Reiterating the arguments it ventilated
before the respondent appellate Court, petitioner continues to deny the existence of the trust, alleging that it never intended to enter into a fiduciary
relationship with private respondent and REPACOM and that it held on to the dollar balance only as a means to protect its interest. Furthermore,
petitioner insists that the Loss and Subrogation Receipt signed by the insureds released and absolved petitioner from all liabilities, including the
claimed interest.
Briefly, the key issues in this case may be re-stated thus:
I. The existence of a trust relationship;
II. The significance of the Loss and Subrogation Receipt;
III. Petitioner's liability for accrued interest on the dollar balance; and
IV. Correctness of the award of attorney's fees.
The Court's Ruling

The shop-worn arguments recycled by petitioner are mainly devoid of merit. We searched for arguments that could constitute reversible errors
committed by the respondent Court, but found only one in the last issue.
First Issue: The Trust Relationship
Crucial in the resolution of this case is the determination of the role played by petitioner. Did it act merely as an insurer, or was it also a trustee? In
ruling that petitioner was a trustee of the private respondent and REPACOM, the Court of Appeals ratiocinated thus:
The respondent (trial) court sustained the theory of TRANSOCEAN and was of the view that RIZAL held the dollar balance of
US$718,078.20 as trustee for the benefit of REPACOM and plaintiff corporation (private respondent herein) upon consideration
of the following facts and the said court's observation
1. That pursuant to RIZAL's letter to the Central Bank dated November 25, 1975, it requested that is authority to deposit the
dollar proceeds with any local bank be amended by allowing it to deposit the same in the name of "Rizal Surety & Insurance
Company for the joint account of the Reparations Commission and Transocean Transport Corporation." It further states, to wit:
This is in conformity with our agreement on this matter with the respective officers of our insureds,
Reparations Commission and Transocean Transport Corporation, during our conference held in the office of
Solicitor General Estelito Mendoza, last 18 November 1975. (Exhibit I)
From these facts, it is very clear that the parties thereto intended that the entire dollar insurance proceeds be held in trust by
defendant RIZAL for the benefit of REPACOM and plaintiff corporation.
2. This agreement was further fortified by the Central Bank's reply to the above-mentioned letter authorizing RIZAL to deposit
the dollar insurance proceeds in the name of "Rizal Surety & Insurance Company for the joint account of Transocean Transport
Corporation and Reparations Commission" (Exhibit J).
3. Likewise, defendant RIZAL's letter to REPACOM and plaintiff corporation confirming the fact that the insurance proceeds
were then deposited with Prudential Bank and it was recorded under the name of Rizal Surety & Insurance Company for the joint
account of Transocean Transport Corporation and REPACOM (Exhibit L).
4. The partial compromise agreement entered into between the insureds on January 29, 1976 over the division of the insurance
proceeds which provides as follows:
4. The disputed portion or the balance of the insurance proceeds remaining after
deducting the undisputed portions as agreed above shall be kept in the same bank deposit
in trust for and in the joint name of REPACOM and TRANSOCEAN until such time as
there is a court decision or a compromise agreement on the full amount or portion
thereof, or until such time as REPACOM and TRANSOCEAN shall agree jointly to
transfer such balance to another bank account.
It appears clearly that even from the start of the communications among themselves, especially between
defendant RIZAL on one hand and REPACOM and the plaintiff corporation, on the other hand, it shows that
the parties intended that the dollar insurance proceeds be held in the name of defendant RIZAL for the joint
benefit of REPACOM and plaintiff corporation. No repudiation was ever made or any one of the parties for
that matter questioned said agreement. There was, therefore, created a trust relationship between RIZAL on
one hand and the REPACOM and plaintiff corporation on the other, over the dollar insurance proceeds of the
lost vessel. . . .
Indeed, the aforesaid enumerated facts sufficiently manifest the intention between REPACOM and TRANSOCEAN on one hand
and RIZAL, on the other, to create a trust.
It was RIZAL itself which requested the Central Bank that it be allowed to deposit the dollars in its name and "for the joint
account of REPACOM and TRANSOCEAN" instead of in the joint account of REPACOM and TRANSOCEAN as originally
authorized. Moreover, the Partial Compromise Agreement explicitly states that the dollars "shall be kept in the same bank
deposits in trust for and in the joint name of REPACOM and TRANSOCEAN". While it is true, that RIZAL was not a party to
the Compromise Agreement, nevertheless, RIZAL was furnished a copy of the same and did not in any way manifest objection
thereto. On the contrary, RIZAL even implemented certain provisions thereof.
xxx xxx xxx
The intention to create a trust relation can be inferred from the surrounding factual circumstances. Thus:

Such a manifestation can in fact be determined merely by construction of, and inference from, the
surrounding factual circumstances, so long as the proof thereof is clear, satisfactory, and convincing, and does
not rest on loose, equivocal or indefinite declarations (Medina vs. CA, 109 SCRA 437).
Petitioner claims that respondent Court was misled by the trial court's crucial mis-assumption that petitioner was the one which took the initiative of
requesting 23 authorization from CB to deposit the dollar proceeds in its name, into concluding that a trust relationship had been created. Petitioner
insists that it did so only in reaction to the earlier CB letter dated November 20, 1975 which first ordered petitioner to receive the dollar insurance
proceeds and deposit the same with any local bank in a non-interest bearing account in the names of Transocean and REPACOM jointly, and that it
(petitioner) made such request to avoid having the dollar proceeds paid directly to the account of the two insured, as that would be tantamount to full
payment of the loss without first securing petitioner's release from its liabilities under the insurance policies. In short, petitioner claims it was just
trying to protect its interest when it made such request. Petitioner further scores the respondent Court for relying on the two insured's arrangement
contained in the Partial Compromise Agreement that the dollar balance be kept in the same bank deposit (held by petitioner) "in trust for and in the
joint name of REPACOM and TRANSOCEAN". Petitioner insists it was never a party to said compromise agreement, and that therefore, it should
not be held bound by anything contained therein, and simply because it "did not in any way manifest objection thereto" 24
Petitioner's arguments notwithstanding, we hold that the courts below were correct in concluding that a trust relationship existed. It is basic in law
that a trust is the right, enforceable solely in equity, to the beneficial enjoyment of property, the legal title to which is vested in another. 25 It is a
fiduciary relationship 26 concerning property which obliges a person holding it (i.e., the trustee) to deal with the property for the benefit of another
(i.e. the beneficiary). The Civil Code provides that:
Art. 1441. Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. . . .
Art. 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.
Express trusts are created by direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly or impliedly
evincing an intention to create a trust. 27
The evidence on record is clear that petitioner held on to the dollar balance of the insurance proceeds because (1) private respondent and REPACOM
requested it to do so as they had not yet agreed on the amount of their respective claims, and the Final Compromise Agreement was yet to be
executed, and (2) they had not, prior to January 31, 1977, signed the Loss and Subrogation Receipt in favor of petitioner.
Furthermore, petitioner's letter dated November 20, 1975 addressed to the CB expressly stated that the deposit in Prudential Bank was being made in
its name for the joint account of the private respondent and REPACOM. Petitioner never claimed ownership over the funds in said deposit. In fact, it
made several tenders of payment to the private respondent and REPACOM, albeit the latter declined to accept since the dispute as to their respective
claims could not yet be resolved at that time. By its own allegation, petitioner held on to the dollar balance of the insurance proceeds to protect its
interest, as it was not yet granted the right of subrogation over the total loss of the vessel. As petitioner continued holding on to the deposit for the
benefit of private respondent and REPACOM, petitioner obviously recognized its fiduciary relationship with said parties. This is the essence of the
trust flowing from the actions and communications of petitioner.
In Mindanao Development Authority vs. Court of Appeals, 28 this Court held:
. . . It is fundamental in the law of trusts that certain requirements must exist before an express trust will be recognized. Basically,
these elements include a competent trustor and trustee, an ascertainable trust res, and sufficiently certain beneficiaries. Stilted
formalities are unnecessary, but nevertheless each of the above elements is required to be established, and, if any one of them is
missing, it is fatal to the trusts (sic). Furthermore, there must be a present and complete disposition of the trust property,
notwithstanding that the enjoyment in the beneficiary will take place in the future. It is essential, too, that the purpose be an
active one to prevent trust from being executed into a legal estate or interest, and one that is not in contravention of some
prohibition of statute or rule of public policy. There must also be some power of administration other than a mere duty to perform
a contract although the contract is for a third-party beneficiary. A declaration of terms is essential, and these must be stated with
reasonable certainty in order that the trustee may administer, and that the court, if called upon so to do, may enforce, the trust.
(citing Sec. 31, Trusts, Am Jur 2d, pp. 278-279.)
Undeniably, all the abovementioned elements are present in the instant case. Petitioner's argument that it was never a party to the Partial Compromise
Agreement is unavailing, since, upon being furnished a copy of the same, it undoubtedly became aware if it was not already aware even prior
thereto that the parties to said agreement considered petitioner as their trustee in respect of said dollar balance; in short, it is all too evident that
petitioner fully grasped the situation and realized that private respondent and REPACOM were constituting petitioner their trustee. Yet, petitioner not
only did not manifest any objection thereto, but it instead proceeded to accept its role and responsibility as such trustee by implementing the
compromise agreement. Equally as significant, petitioner never committed any act amounting to an unequivocal repudiation of its role as trustee.
Petitioner's desperate attempt to establish a viable defense by way of its allegation that no fiduciary relationship could have existed because of the
joint insured's adversary positions with respect to the insurance proceeds deserves scant consideration. The so-called adversary positions of the
parties had no effect on the trust as it never changed the position of the parties in relation to each other and to the dollar proceeds, i.e., petitioner held
it for private respondent and REPACOM, which were the real owners of the money.

Second Issue: The Significance Of The

Loss and Subrogation Receipt
The respondent Court committed no reversible error in its appreciation of the Loss and Subrogation Receipt, which reads in relevant part.
. . . we have unconditionally and absolutely accepted full payment from Rizal Surety & Insurance Company, as insurer, of its total
liabilities.
In consideration of this full payment, we hereby assign, cede and transfer to said Insurance Company any and all claims, interests
and demands of whatever nature against any person, entity, corporation or property arising from or otherwise connected with
such total loss of the insured property and we hereby acknowledge that the said Company is subrogated in our place and stead to
any and all claims, interests and demands that we have, or in the future might have, against all persons, entities, corporations or
properties to the full extent of the abovementioned payment received by us.
Said receipt absolved the petitioner only from all claims arising from the insurance policies it issued. It did not exculpate petitioner from its liability
for the accrued interest as this obligation arose in connection with its role as trustee and its unjustified refusal to deposit the money in an interestbearing account as required.
The respondent Court correctly held that:
RIZAL gives undue importance to the Loss and Subrogation Receipt (Exh. U-1) signed by TRANSOCEAN and REPACOM in
an effort to absolve itself from liability.
The execution of the said Loss and Subrogation Receipt did not preclude the joint insured from claiming the accrued interest.
TRANSOCEAN and REPACOM released RIZAL only from its (RIZAL) liabilities arising from the insurance policies issued,
that is, in regard to the principal amount representing the insurance proceeds but not to the accrued interest which stemmed from
its refusal to deposit the disputed dollar portion in violation of its duty as a trustee to deposit the same under the terms most
advantageous to TRANSOCEAN and REPACOM. Corollary thereto, RIZAL was subrogated to the rights which stemmed from
the insurance contract but not to those which arise from the trust relationship; otherwise, that would lead to an absurd situation.
At most, the signing of the Loss and Subrogation Receipt was a valid pre-condition before petitioner could be compelled to turn over the whole
amount of the insurance proceeds to the two insured. Thus, in response to the letter of private respondent and REPACOM to petitioner dated April 21,
1975, petitioner reiterated its offer to pay the balance of the insurance claim provided the former sign the Loss and Subrogation Receipt. But this was
done only on October 10, 1977.
Third Issue: Liability Of Petitioner For
Accrued Interest
Petitioner argues, rather unconvincingly, that it was of the belief that, as it was never the trustee for the insured and thus was under no obligation to
execute the instruction to transfer the dollar balance into an interest-bearing account, therefore, it was also not obligated and hence it did not
bother to advise private respondent and REPACOM that it would neither remit the dollar balance to the insured's bank of choice as specifically
instructed, nor just deposit the same in an interest-bearing account at Prudential Bank. Petitioner's other contention that it was not bound by the CB
order, despite its having been informed thereof and copy furnished by private respondent and REPACOM, simply because said order was not directed
to it, is even more ridiculous and undeserving of further comment.
Originally, petitioner, as shown by its November 25, 1975 letter, only agreed to receive and deposit the money under its name for the joint account of
the private respondent and REPACOM in a non-interest bearing account. At that point, as trustee, it could have easily discharged its obligation by
simply transferring and paying the dollar balance to private respondent and REPACOM and by so doing, would have dissolved the trust. However,
when the trustors instructed petitioner as trustee to deposit the funds in an interest-bearing account, the latter ought, as a matter of ordinary common
sense and common decency, to have at least informed the insured that it could not or would not, for whatever reason, carry out said instructions. This
is the very least it could have done if indeed it wanted to repudiate its role as trustee or be relieved of its obligations as such trustee at that point.
Instead of doing thus, petitioner chose to remain silent. After petitioner's receipt of the April 21, 1976 letter of private respondent and REPACOM
requesting petitioner to remit the the dollar balance to an interest-bearing account, petitioner merely tendered payment of the said dollar balance in
exchange for the signed Loss and Subrogation Receipt. This falls far short of the requirement to clearly inform the trustor-beneficiaries of petitioner's
refusal or inability to comply with said request/instruction. Such silence and inaction in the face of specific written instructions from the trustorsbeneficiaries could not but have misled the latter into thinking that the trustee was amenable to and was carrying out their instructions, there being no
reason for them to think otherwise. This in turn prevented the trustors-beneficiaries from early on taking action to discharge the unwilling trustee and
appointing a new trustee in its place or from otherwise effecting the transfer of the deposit into an interest-bearing account. The result was that the
trustors-beneficiaries, private respondent and REPACOM, suffered prejudice in the form of loss of interest income on the dollar balance. As already
mentioned, such prejudice could have been prevented had petitioner acted promptly and in good faith by communicating its real intentions to the
trustors.
Beyond the foregoing considerations, we must also make mention of the matter of undue enrichment. We agree with private respondent that the dollar
balance of US$718,078.20 was certainly a large sum of money. Leaving such an enormous amount in a non-interest bearing bank account for an
extended period of time about one year and nine months would undoubtedly have not only prejudiced the owner(s) of the funds, but, equally as

true, would have resulted to the immense benefit of Prudential Bank (which happens to be a sister company of the petitioner), which beyond the
shadow of a doubt must have earned income thereon by utilizing and relending the same without having to pay any interest cost thereon. However
one looks at it, it is grossly unfair for anyone to earn income on the money of another and still refuse to share any part of that income with the latter.
And whether petitioner benefited directly, or indirectly as by enabling its sister company to earn income on the dollar balance, is immaterial. The fact
is that petitioner's violation of its duty as trustee was at the expense of private respondent, and for the ultimate benefit of petitioner or its
stockholders. This we cannot let pass.
Fourth Issue: Award of Attorney's Fees is Improper
Petitioner argues that respondent Court erred in affirming the RTC's award of attorney's fees and costs of suit, repeating the oft-heard refrain that it is
not sound public policy to place a premium on the right to litigate.
It is well settled that attorney's fees should not be awarded in the absence of stipulation except under the instances enumerated in Art. 2208 of the
New Civil Code. As held by this Court in Solid Homes, Inc. vs. Court of Appeals: 29
Article 2208 of the Civil Code allows attorney's fees to be awarded by a court when its claimant is compelled to litigate with third
persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought.
While judicial discretion is here extant, an award thereof demands, nevertheless, a factual, legal or equitable justification. The
matter cannot and should not be left to speculation and conjecture (Mirasol vs. De la Cruz, 84 SCRA 337; Stronghold Insurance
Company, Inc. vs. Court of Appeals, 173 SCRA 619).
In the case at bench, the records do not show enough basis for sustaining the award for attorney's fees and to adjudge its payment
by petitioner. . . .
Likewise, this Court held in Stronghold Insurance Company, Inc. vs. Court of Appeals 30 that:
In Abrogar v. Intermediate Appellate Court [G.R. No. 67970, January 15, 1988, 157 SCRA 57] the Court had occasion to state
that "[t]he reason for the award of attorney's fees must be stated in the text of the court's decision, otherwise, if it is stated only in
the dispositive portion of the decision, the same must be disallowed on appeal. . . .
The Court finds that the same situation obtains in this case. A perusal of the text of the decisions of the trial court and the appellate Court reveals the
absence of any justification for the award of attorney's fees made in the fallo or dispositive portions. Hence, the same should be disallowed and
deleted.
WHEREFORE, the petition is DENIED, and the assailed Decision is hereby AFFIRMED with the sole modification that the award of attorney's fees
in favor of private respondent is DELETED.
SO ORDERED.
G.R. No. 138941

October 8, 2001

AMERICAN HOME ASSURANCE COMPANY, petitioner,

vs.
TANTUCO ENTERPRISES, INC., respondent.
PUNO, J.:
Before us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals in CA-G.R. CV No. 52221 promulgated on January 14,
1999, which affirmed in toto the Decision of the Regional Trial Court, Branch 53, Lucena City in Civil Case No. 92-51 dated October 16, 1995.
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry. It owns two oil mills. Both are located at factory
compound at Iyam, Lucena City. It appears that respondent commenced its business operations with only one oil mill. In 1988, it started operating its
second oil mill. The latter came to be commonly referred to as the new oil mill.
The two oil mills were separately covered by fire insurance policies issued by petitioner American Home Assurance Co., Philippine Branch. 1 The first
oil mill was insured for three million pesos (P3,000,000.00) under Policy No. 306-7432324-3 for the period March 1, 1991 to 1992. 2 The new oil mill
was insured for six million pesos (P6,000,000.00) under Policy No. 306-7432321-9 for the same term. 3 Official receipts indicating payment for the
full amount of the premium were issued by the petitioner's agent. 4
A fire that broke out in the early morning of September 30,1991 gutted and consumed the new oil mill. Respondent immediately notified the
petitioner of the incident. The latter then sent its appraisers who inspected the burned premises and the properties destroyed. Thereafter, in a letter
dated October 15, 1991, petitioner rejected respondent's claim for the insurance proceeds on the ground that no policy was issued by it covering the
burned oil mill. It stated that the description of the insured establishment referred to another building thus: "Our policy nos. 306-7432321-9 (Ps 6M)

and 306-7432324-4 (Ps 3M) extend insurance coverage to your oil mill under Building No. 5, whilst the affected oil mill was under Building No. 14.
"5
A complaint for specific performance and damages was consequently instituted by the respondent with the RTC, Branch 53 of Lucena City. On
October 16, 1995, after trial, the lower court rendered a Decision finding the petitioner liable on the insurance policy thus:
"WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay plaintiff:
(a) P4,406,536.40 representing damages for loss by fire of its insured property with interest at the legal rate;
(b) P80,000.00 for litigation expenses;
(c) P300,000.00 for and as attorney's fees; and
(d) Pay the costs.
SO ORDERED."6
Petitioner assailed this judgment before the Court of Appeals. The appellate court upheld the same in a Decision promulgated on January 14, 1999,
the pertinent portion of which states:
"WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and the trial court's Decision dated October 16, 1995 is hereby
AFFIRMED in toto.
SO ORDERED."7
Petitioner moved for reconsideration. The motion, however, was denied for lack of merit in a Resolution promulgated on June 10, 1999.
Hence, the present course of action, where petitioner ascribes to the appellate court the following errors:
"(1) The Court of Appeals erred in its conclusion that the issue of non-payment of the premium was beyond its jurisdiction because it was
raised for the first time on appeal."8
"(2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances Warranty' of the policy." 9
"(3) With due respect, the conclusion of the Court of Appeals giving no regard to the parole evidence rule and the principle of estoppel is
erroneous."10
The petition is devoid of merit.
The primary reason advanced by the petitioner in resisting the claim of the respondent is that the burned oil mill is not covered by any insurance
policy. According to it, the oil mill insured is specifically described in the policy by its boundaries in the following manner:
"Front: by a driveway thence at 18 meters distance by Bldg. No. 2.
Right: by an open space thence by Bldg. No. 4.
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
Rear: by an open space thence at 8 meters distance."
However, it argues that this specific boundary description clearly pertains, not to the burned oil mill, but to the other mill. In other words, the oil mill
gutted by fire was not the one described by the specific boundaries in the contested policy.
What exacerbates respondent's predicament, petitioner posits, is that it did not have the supposed wrong description or mistake corrected. Despite the
fact that the policy in question was issued way back in 1988, or about three years before the fire, and despite the "Important Notice" in the policy that
"Please read and examine the policy and if incorrect, return it immediately for alteration," respondent apparently did not call petitioner's attention
with respect to the misdescription.

By way of conclusion, petitioner argues that respondent is "barred by the parole evidence rule from presenting evidence (other than the policy in
question) of its self-serving intention (sic) that it intended really to insure the burned oil mill," just as it is "barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, because it retained the policy without having the same corrected before the fire by an
endorsement in accordance with its Condition No. 28."
These contentions can not pass judicial muster.
In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts in giving effect to the insurance. 11 In view
of the custom of insurance agents to examine buildings before writing policies upon them, and since a mistake as to the identity and character of the
building is extremely unlikely, the courts are inclined to consider that the policy of insurance covers any building which the parties manifestly
intended to insure, however inaccurate the description may be. 12
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the parties manifestly intended to insure was
the new oil mill. This is obvious from the categorical statement embodied in the policy, extending its protection:
"On machineries and equipment with complete accessories usual to a coconut oil mill including stocks of copra, copra cake and copra mills
whilst contained in the new oil mill building, situate (sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY
UNBLOCKED.''13 (emphasis supplied.)
If the parties really intended to protect the first oil mill, then there is no need to specify it as new.
Indeed, it would be absurd to assume that respondent would protect its first oil mill for different amounts and leave uncovered its second one. As
mentioned earlier, the first oil mill is already covered under Policy No. 306-7432324-4 issued by the petitioner. It is unthinkable for respondent to
obtain the other policy from the very same company. The latter ought to know that a second agreement over that same realty results in its over
insurance.
The imperfection in the description of the insured oil mill's boundaries can be attributed to a misunderstanding between the petitioner's general agent,
Mr. Alfredo Borja, and its policy issuing clerk, who made the error of copying the boundaries of the first oil mill when typing the policy to be issued
for the new one. As testified to by Mr. Borja:
"Atty. G. Camaligan:
Q:

What did you do when you received the report?

A:
I told them as will be shown by the map the intention really of Mr. Edison Tantuco is to cover the new oil mill that is why when I
presented the existing policy of the old policy, the policy issuing clerk just merely (sic) copied the wording from the old policy and what
she typed is that the description of the boundaries from the old policy was copied but she inserted covering the new oil mill and to
me at that time the important thing is that it covered the new oil mill because it is just within one compound and there are only two oil
mill[s] and so just enough, I had the policy prepared. In fact, two policies were prepared having the same date one for the old one and the
other for the new oil mill and exactly the same policy period, sir."14 (emphasis supplied)
It is thus clear that the source of the discrepancy happened during the preparation of the written contract.
These facts lead us to hold that the present case falls within one of the recognized exceptions to the parole evidence rule. Under the Rules of Court, a
party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading, among others, its failure
to express the true intent and agreement of the parties thereto. 15 Here, the contractual intention of the parties cannot be understood from a mere
reading of the instrument. Thus, while the contract explicitly stipulated that it was for the insurance of the new oil mill, the boundary description
written on the policy concededly pertains to the first oil mill. This irreconcilable difference can only be clarified by admitting evidence aliunde,
which will explain the imperfection and clarify the intent of the parties.
Anent petitioner's argument that the respondent is barred by estoppel from claiming that the description of the insured oil mill in the policy was
wrong, we find that the same proceeds from a wrong assumption. Evidence on record reveals that respondent's operating manager, Mr. Edison
Tantuco, notified Mr. Borja (the petitioner's agent with whom respondent negotiated for the contract) about the inaccurate description in the policy.
However, Mr. Borja assured Mr. Tantuco that the use of the adjective new will distinguish the insured property. The assurance convinced respondent,
despite the impreciseness in the specification of the boundaries, the insurance will cover the new oil mill. This can be seen from the testimony on
cross of Mr. Tantuco:
"ATTY. SALONGA:
Q:

You mentioned, sir, that at least in so far as Exhibit A is concern you have read what the policy contents. (sic)

Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2 particularly the boundaries of the property insured by the
insurance policy Exhibit A, will you tell us as the manager of the company whether the boundaries stated in Exhibit A-2 are the boundaries
of the old (sic) mill that was burned or not.
A:
It was not, I called up Mr. Borja regarding this matter and he told me that what is important is the word new oil mill. Mr. Borja
said, as a matter of fact, you can never insured (sic) one property with two (2) policies, you will only do that if you will make to increase
the amount and it is by indorsement not by another policy, sir., 16
We again stress that the object of the court in construing a contract is to ascertain the intent of the parties to the contract and to enforce the agreement
which the parties have entered into. In determining what the parties intended, the courts will read and construe the policy as a whole and if possible,
give effect to all the parts of the contract, keeping in mind always, however, the prime rule that in the event of doubt, this doubt is to be resolved
against the insurer. In determining the intent of the parties to the contract, the courts will consider the purpose and object of the contract. 17
In a further attempt to avoid liability, petitioner claims that respondent forfeited the renewal policy for its failure to pay the full amount of the
premium and breach of the Fire Extinguishing Appliances Warranty.
The amount of the premium stated on the face of the policy was P89,770.20. From the admission of respondent's own witness, Mr. Borja, which the
petitioner cited, the former only paid it P75,147.00, leaving a difference of P14,623.20. The deficiency, petitioner argues, suffices to invalidate the
policy, in accordance with Section 77 of the Insurance Code. 18
The Court of Appeals refused to consider this contention of the petitioner. It held that this issue was raised for the first time on appeal, hence, beyond
its jurisdiction to resolve, pursuant to Rule 46, Section 18 of the Rules of Court. 19
Petitioner, however, contests this finding of the appellate court. It insists that the issue was raised in paragraph 24 of its Answer, viz.:
"24. Plaintiff has not complied with the condition of the policy and renewal certificate that the renewal premium should be paid on or
before renewal date."
Petitioner adds that the issue was the subject of the cross-examination of Mr. Borja, who acknowledged that the paid amount was lacking by
P14,623.20 by reason of a discount or rebate, which rebate under Sec. 361 of the Insurance Code is illegal.
The argument fails to impress. It is true that the asseverations petitioner made in paragraph 24 of its Answer ostensibly spoke of the policy's condition
for payment of the renewal premium on time and respondent's non-compliance with it. Yet, it did not contain any specific and definite allegation that
respondent did not pay the premium, or that it did not pay the full amount, or that it did not pay the amount on time.
Likewise, when the issues to be resolved in the trial court were formulated at the pre-trial proceedings, the question of the supposed inadequate
payment was never raised. Most significant to point, petitioner fatally neglected to present, during the whole course of the trial, any witness to testify
that respondent indeed failed to pay the full amount of the premium. The thrust of the cross-examination of Mr. Borja, on the other hand, was not for
the purpose of proving this fact. Though it briefly touched on the alleged deficiency, such was made in the course of discussing a discount or rebate,
which the agent apparently gave the respondent. Certainly, the whole tenor of Mr. Borja's testimony, both during direct and cross examinations,
implicitly assumed a valid and subsisting insurance policy. It must be remembered that he was called to the stand basically to demonstrate that an
existing policy issued by the petitioner covers the burned building.
Finally, petitioner contends that respondent violated the express terms of the Fire Extinguishing Appliances Warranty. The said warranty provides:
"WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances as mentioned below shall be maintained in efficient working
order on the premises to which insurance applies:
-

PORTABLE EXTINGUISHERS

INTERNAL HYDRANTS

EXTERNAL HYDRANTS

FIRE PUMP

24-HOUR SECURITY SERVICES

BREACH of this warranty shall render this policy null and void and the Company shall no longer be liable for any loss which may occur." 20

Petitioner argues that the warranty clearly obligates the insured to maintain all the appliances specified therein. The breach occurred when the
respondent failed to install internal fire hydrants inside the burned building as warranted. This fact was admitted by the oil mill's expeller operator,
Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate court's conclusion that the aforementioned warranty did not require respondent to
provide for all the fire extinguishing appliances enumerated therein. Additionally, we find that neither did it require that the appliances are restricted
to those mentioned in the warranty. In other words, what the warranty mandates is that respondent should maintain in efficient working condition
within the premises of the insured property, fire fighting equipments such as, but not limited to, those identified in the list, which will serve as the oil
mill's first line of defense in case any part of it bursts into flame.
To be sure, respondent was able to comply with the warranty. Within the vicinity of the new oil mill can be found the following devices: numerous
portable fire extinguishers, two fire hoses,21 fire hydrant,22 and an emergency fire engine. 23 All of these equipments were in efficient working order
when the fire occurred.
It ought to be remembered that not only are warranties strictly construed against the insurer, but they should, likewise, by themselves be reasonably
interpreted.24 That reasonableness is to be ascertained in light of the factual conditions prevailing in each case. Here, we find that there is no more
need for an internal hydrant considering that inside the burned building were: (1) numerous portable fire extinguishers, (2) an emergency fire engine,
and (3) a fire hose which has a connection to one of the external hydrants.
IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instant petition is hereby DISMISSED.
SO ORDERED.
G.R. No. 81026

April 3, 1990

PAN MALAYAN INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents.
Regulus E. Cabote & Associates for petitioner.
Benito P. Fabie for private respondents.

CORTES, J.:
Petitioner Pan Malayan Insurance Company (PANMALAY) seeks the reversal of a decision of the Court of Appeals which upheld an order of the trial
court dismissing for no cause of action PANMALAY's complaint for damages against private respondents Erlinda Fabie and her driver.
The principal issue presented for resolution before this Court is whether or not the insurer PANMALAY may institute an action to recover the amount
it had paid its assured in settlement of an insurance claim against private respondents as the parties allegedly responsible for the damage caused to the
insured vehicle.
On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private respondents Erlinda Fabie and her
driver. PANMALAY averred the following: that it insured a Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of
Canlubang Automotive Resources Corporation [CANLUBANG]; that on May 26, 1985, due to the "carelessness, recklessness, and imprudence" of
the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and suffered damages in the amount of P42,052.00; that
PANMALAY defrayed the cost of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG against the driver of the
pick-up and his employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and refused to pay the claim of PANMALAY.
Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental motion thereto. In compliance therewith, PANMALAY
clarified, among others, that the damage caused to the insured car was settled under the "own damage", coverage of the insurance policy, and that the
driver of the insured car was, at the time of the accident, an authorized driver duly licensed to drive the vehicle. PANMALAY also submitted a copy
of the insurance policy and the Release of Claim and Subrogation Receipt executed by CANLUBANG in favor of PANMALAY.
On February 12, 1986, private respondents filed a Motion to Dismiss alleging that PANMALAY had no cause of action against them. They argued
that payment under the "own damage" clause of the insurance policy precluded subrogation under Article 2207 of the Civil Code, since
indemnification thereunder was made on the assumption that there was no wrongdoer or no third party at fault.
After hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued an order dated June 16, 1986 dismissing
PANMALAY's complaint for no cause of action. On August 19, 1986, the RTC denied PANMALAY's motion for reconsideration.

On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals on November 27, 1987. Consequently, PANMALAY filed the
present petition for review.
After private respondents filed its comment to the petition, and petitioner filed its reply, the Court considered the issues joined and the case submitted
for decision.
Deliberating on the various arguments adduced in the pleadings, the Court finds merit in the petition.
PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it had indemnified CANLUBANG for the damage to the
insured car resulting from a traffic accident allegedly caused by the negligence of the driver of private respondent, Erlinda Fabie. PANMALAY
contended, therefore, that its cause of action against private respondents was anchored upon Article 2207 of the Civil Code, which reads:
If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. . . .
PANMALAY is correct.
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the
fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right
of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer [Compania Maritima v. Insurance Company of North America, G.R. No. L-18965, October 30, 1964,
12 SCRA 213; Fireman's Fund Insurance Company v. Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].
There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for the loss
or damage, from liability, the insurer's right of subrogation is defeated [Phoenix Ins. Co. of Brooklyn v. Erie & Western Transport, Co., 117 US 312,
29 L. Ed. 873 (1886); Insurance Company of North America v. Elgin, Joliet & Eastern Railway Co., 229 F 2d 705 (1956)]. Similarly, where the
insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled the assured's claim for loss, the
settlement is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation
[McCarthy v. Barber Steamship Lines, Inc., 45 Phil. 488 (1923)]. And where the insurer pays the assured for a loss which is not a risk covered by the
policy, thereby effecting "voluntary payment", the former has no right of subrogation against the third party liable for the loss [Sveriges Angfartygs
Assurans Forening v. Qua Chee Gan, G. R. No. L-22146, September 5, 1967, 21 SCRA 12].
None of the exceptions are availing in the present case.
The lower court and Court of Appeals, however, were of the opinion that PANMALAY was not legally subrogated under Article 2207 of the Civil
Code to the rights of CANLUBANG, and therefore did not have any cause of action against private respondents. On the one hand, the trial court held
that payment by PANMALAY of CANLUBANG's claim under the "own damage" clause of the insurance policy was an admission by the insurer that
the damage was caused by the assured and/or its representatives. On the other hand, the Court of Appeals in applying the ejusdem generis rule held
that Section III-1 of the policy, which was the basis for settlement of CANLUBANG's claim, did not cover damage arising from collision or
overturning due to the negligence of third parties as one of the insurable risks. Both tribunals concluded that PANMALAY could not now invoke
Article 2207 and claim reimbursement from private respondents as alleged wrongdoers or parties responsible for the damage.
The above conclusion is without merit.
It must be emphasized that the lower court's ruling that the "own damage" coverage under the policy implies damage to the insured car caused by the
assured itself, instead of third parties, proceeds from an incorrect comprehension of the phrase "own damage" as used by the insurer. When
PANMALAY utilized the phrase "own damage" a phrase which, incidentally, is not found in the insurance policy to define the basis for its
settlement of CANLUBANG's claim under the policy, it simply meant that it had assumed to reimburse the costs for repairing the damage to the
insured vehicle [See PANMALAY's Compliance with Supplementary Motion for Bill of Particulars, p. 1; Record, p. 31]. It is in this sense that the socalled "own damage" coverage under Section III of the insurance policy is differentiated from Sections I and IV-1 which refer to "Third Party
Liability" coverage (liabilities arising from the death of, or bodily injuries suffered by, third parties) and from Section IV-2 which refer to "Property
Damage" coverage (liabilities arising from damage caused by the insured vehicle to the properties of third parties).
Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under Section III-1 of the policy does not include to the
insured vehicle arising from collision or overturning due to the negligent acts of the third party. Not only does it stem from an erroneous
interpretation of the provisions of the section, but it also violates a fundamental rule on the interpretation of property insurance contracts.
It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the sense and meaning of the terms
which the parties thereto have used. In the case of property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the
assured, determine the import of the various terms and provisions embodied in the policy. It is only when the terms of the policy are ambiguous,
equivocal or uncertain, such that the parties themselves disagree about the meaning of particular provisions, that the courts will intervene. In such an

event, the policy will be construed by the courts liberally in favor of the assured and strictly against the insurer [Union Manufacturing Co., Inc. v.
Philippine Guaranty Co., Inc., G.R., No. L-27932, October 30, 1972, 47 SCRA 271; National Power Corporation v. Court of Appeals, G.R. No. L43706, November 14, 1986, 145 SCRA 533; Pacific Banking Corporation v. Court of Appeals, G.R. No. L-41014, November 28, 1988, 168 SCRA 1.
Also Articles 1370-1378 of the Civil Code].
Section III-1 of the insurance policy which refers to the conditions under which the insurer PANMALAY is liable to indemnify the assured
CANLUBANG against damage to or loss of the insured vehicle, reads as follows:
SECTION III LOSS OR DAMAGE
1. The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Scheduled Vehicle and its
accessories and spare parts whilst thereon:
(a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent
upon wear and tear;
(b) by fire, external explosion, self ignition or lightning or burglary, housebreaking or theft;
(c) by malicious act;
(d) whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland, waterway,
lift or elevator.
xxx

xxx

xxx

[Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars; Record, p. 34; Emphasis supplied].
PANMALAY contends that the coverage of insured risks under the above section, specifically Section III-1(a), is comprehensive enough to include
damage to the insured vehicle arising from collision or overturning due to the fault or negligence of a third party. CANLUBANG is apparently of the
same understanding. Based on a police report wherein the driver of the insured car reported that after the vehicle was sideswiped by a pick-up, the
driver thereof fled the scene [Record, p. 20], CANLUBANG filed its claim with PANMALAY for indemnification of the damage caused to its car. It
then accepted payment from PANMALAY, and executed a Release of Claim and Subrogation Receipt in favor of latter.
Considering that the very parties to the policy were not shown to be in disagreement regarding the meaning and coverage of Section III-1,
specifically sub-paragraph (a) thereof, it was improper for the appellate court to indulge in contract construction, to apply the ejusdem generis rule,
and to ascribe meaning contrary to the clear intention and understanding of these parties.
It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase "by accidental collision or overturning" found in the first
paint of sub-paragraph (a) is untenable. Although the terms "accident" or "accidental" as used in insurance contracts have not acquired a technical
meaning, the Court has on several occasions defined these terms to mean that which takes place "without one's foresight or expectation, an event that
proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected" [De la Cruz v. The Capital Insurance &
Surety Co., Inc., G.R. No. L-21574, June 30, 1966, 17 SCRA 559; Filipino Merchants Insurance Co., Inc. v. Court of Appeals, G.R. No. 85141,
November 28, 1989]. Certainly, it cannot be inferred from jurisprudence that these terms, without qualification, exclude events resulting in damage or
loss due to the fault, recklessness or negligence of third parties. The concept "accident" is not necessarily synonymous with the concept of "no fault".
It may be utilized simply to distinguish intentional or malicious acts from negligent or careless acts of man.
Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or loss of, the insured vehicle due to negligent or careless acts of
third parties is not listed under the general and specific exceptions to the coverage of insured risks which are enumerated in detail in the insurance
policy itself [See Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars, supra.]
The Court, furthermore. finds it noteworthy that the meaning advanced by PANMALAY regarding the coverage of Section III-1(a) of the policy is
undeniably more beneficial to CANLUBANG than that insisted upon by respondents herein. By arguing that this section covers losses or damages
due not only to malicious, but also to negligent acts of third parties, PANMALAY in effect advocates for a more comprehensive coverage of insured
risks. And this, in the final analysis, is more in keeping with the rationale behind the various rules on the interpretation of insurance contracts
favoring the assured or beneficiary so as to effect the dominant purpose of indemnity or payment [See Calanoc v. Court of Appeals, 98 Phil. 79
(1955); Del Rosario v. The Equitable Insurance and Casualty Co., Inc., G.R. No. L-16215, June 29, 1963, 8 SCRA 343; Serrano v. Court of Appeals,
G.R. No. L-35529, July 16, 1984, 130 SCRA 327].
Parenthetically, even assuming for the sake of argument that Section III-1(a) of the insurance policy does not cover damage to the insured vehicle
caused by negligent acts of third parties, and that PANMALAY's settlement of CANLUBANG's claim for damages allegedly arising from a collision
due to private respondents' negligence would amount to unwarranted or "voluntary payment", dismissal of PANMALAY's complaint against private
respondents for no cause of action would still be a grave error of law.

For even if under the above circumstances PANMALAY could not be deemed subrogated to the rights of its assured under Article 2207 of the Civil
Code, PANMALAY would still have a cause of action against private respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening v.
Qua Chee Gan, supra., the Court ruled that the insurer who may have no rights of subrogation due to "voluntary" payment may nevertheless recover
from the third party responsible for the damage to the insured property under Article 1236 of the Civil Code.
In conclusion, it must be reiterated that in this present case, the insurer PANMALAY as subrogee merely prays that it be allowed to institute an action
to recover from third parties who allegedly caused damage to the insured vehicle, the amount which it had paid its assured under the insurance policy.
Having thus shown from the above discussion that PANMALAY has a cause of action against third parties whose negligence may have caused
damage to CANLUBANG's car, the Court holds that there is no legal obstacle to the filing by PANMALAY of a complaint for damages against
private respondents as the third parties allegedly responsible for the damage. Respondent Court of Appeals therefore committed reversible error in
sustaining the lower court's order which dismissed PANMALAY's complaint against private respondents for no cause of action. Hence, it is now for
the trial court to determine if in fact the damage caused to the insured vehicle was due to the "carelessness, recklessness and imprudence" of the
driver of private respondent Erlinda Fabie.
WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's complaint for damages against private respondents is hereby
REINSTATED. Let the case be remanded to the lower court for trial on the merits.
SO ORDERED.
G.R. No. L-67835 October 12, 1987
MALAYAN INSURANCE CO., INC. (MICO), petitioner,
vs.
GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE COMMISSIONER, and CORONACION PINCA, respondents.

CRUZ, J.:
When a person's house is razed, the fire usually burns down the efforts of a lifetime and forecloses hope for the suddenly somber future. The vanished
abode becomes a charred and painful memory. Where once stood a home, there is now, in the sighing wisps of smoke, only a gray desolation. The
dying embers leave ashes in the heart.
For peace of mind and as a hedge against possible loss, many people now secure fire insurance. This is an aleatory contract. By such insurance, the
insured in effect wagers that his house will be burned, with the insurer assuring him against the loss, for a fee. If the house does burn, the insured,
while losing his house, wins the wagers. The prize is the recompense to be given by the insurer to make good the loss the insured has sustained.
It would be a pity then if, having lost his house, the insured were also to lose the payment he expects to recover for such loss. Sometimes it is his
fault that he cannot collect, as where there is a defect imputable to him in the insurance contract. Conversely, the reason may be an unjust refusal of
the insurer to acknowledge a just obligation, as has happened many times.
In the instant case the private respondent has been sustained by the Insurance Commission in her claim for compensation for her burned property.
The petitioner is now before us to dispute the decision, 1 on the ground that there was no valid insurance contract at the time of the loss.
The chronology of the relevant antecedent facts is as follows:
On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion Pinca, Fire Insurance Policy No. F-00117212 on her property for the amount of P14,000.00 effective July 22, 1981, until July 22, 1982. 2
On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding notice to Pinca.
On December 24, 1981, payment of the premium for Pinca was received by DomingoAdora, agent of MICO.
On January 15, 1982, Adora remitted this payment to MICO,together with other payments.

On January 18, 1982, Pinca's property was completely burned. 6

On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had been cancelled earlier. But Adora refused to
accept it. 7
In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went to the Insurance Commission. It is because she was
ultimately sustained by the public respondent that the petitioner has come to us for relief.

From the procedural viewpoint alone, the petition must be rejected. It is stillborn.
The records show that notice of the decision of the public respondent dated April 5, 1982, was received by MICO on April 10, 1982. 8 On April 25,
1982, it filed a motion for reconsideration, which was denied on June 4, 1982. 9 Notice of this denial was received by MICO on June 13, 1982, as
evidenced by Annex "1" duly authenticated by the Insurance Commission. 10 The instant petition was filed with this Court on July 2, 1982. 11
The position of the petition is that the petition is governed by Section 416 0f the Insurance Code giving it thirty days wthin which to appeal by
certiorari to this Court. Alternatively, it also invokes Rule 45 of the Rules of Court. For their part, the public and private respondents insist that the
applicable law is B.P. 129, which they say governs not only courts of justice but also quasi-judicial bodies like the Insurance Commission. The period
for appeal under this law is also fifteen days, as under Rule 45.
The pivotal date is the date the notice of the denial of the motion for reconsideration was received by MICO.
MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is a copy of the Order of June 14, 1982, with a signed rubberstamped notation on the upper left-hand corner that it was received on June 18, 1982, by its legal department. It does not indicate from whom. At the
bottom, significantly, there is another signature under which are the ciphers "6-13-82," for which no explanation has been given.
Against this document, the private respodent points in her Annex "1," 13 the authenticated copy of the same Order with a rubber-stamped notation at
the bottom thereof indicating that it was received for the Malayan Insurance Co., Inc. by J. Gotladera on "6-13-82." The signature may or may not
habe been written by the same person who signed at the bottom of the petitioner's Annex "B."
Between the two dates, the court chooses to believe June 13, 1982, not only because the numbers "6-13-82" appear on both annexes but also because
it is the date authenticated by the administrative division of the Insurance Commission. Annex "B" is at worst self-serving; at best, it might only
indicate that it was received on June 18, 1982, by the legal department of MICO, after it had been received earlier by some other of its personnel on
June 13, 1982. Whatever the reason for the delay in transmitting it to the legal department need not detain us here.
Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the Insurance Commission. The petitioner
filed its motion for reconsideration on April 25, 1981, or fifteen days such notice, and the reglementary period began to run again after June 13, 1981,
date of its receipt of notice of the denial of the said motion for reconsideration. As the herein petition was filed on July 2, 1981, or nineteen days later,
there is no question that it is tardy by four days.
Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable, would end on June 28, 1982, or also four days from
July 2, when the petition was filed.
If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed on the fifteenth day after MICO received notice of the
decision, only one more day would have remained for it to appeal, to wit, June 14, 1982. That would make the petition eighteen days late by July 2.
Indeed, even if the applicable law were still R.A. 5434, governing appeals from administrative bodies, the petition would still be tardy. The law
provides for a fixed period of ten days from notice of the denial of a seasonable motion for reconsideration within which to appeal from the decision.
Accordingly, that ten-day period, counted from June 13, 1982, would have ended on June 23, 1982, making the petition filed on July 2, 1982, nine
days late.
Whichever law is applicable, therefore, the petition can and should be dismissed for late filing.
On the merits, it must also fail. MICO's arguments that there was no payment of premium and that the policy had been cancelled before the
occurence of the loss are not acceptable. Its contention that the claim was allowed without proof of loss is also untenable.
The petitioner relies heavily on Section 77 of the Insurance Code providing that:
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the
grace period provision applies.
The above provision is not applicable because payment of the premium was in fact eventually made in this case. Notably, the premium invoice issued
to Pinca at the time of the delivery of the policy on June 7, 1981 was stamped "Payment Received" of the amoung of P930.60 on "12-24-81" by
Domingo Adora. 14 This is important because it suggests an understanding between MICO and the insured that such payment could be made later, as
agent Adora had assured Pinca. In any event, it is not denied that this payment was actually made by Pinca to Adora, who remitted the same to
MICO.
The payment was made on December 24, 1981, and the fire occured on January 18, 1982. One wonders: suppose the payment had been made and
accepted in, say, August 1981, would the commencement date of the policy have been changed to the date of the payment, or would the payment

have retroacted to July 22, 1981? If MICO accepted the payment in December 1981 and the insured property had not been burned, would that policy
not have expired just the same on July 22, 1982, pursuant to its original terms, and not on December 24, 1982?
It would seem from MICO's own theory, that the policy would have become effective only upon payment, if accepted and so would have been valid
only from December 24, 1981m but only up to July 22, 1981, according to the original terms. In others words, the policy would have run for only
eight months although the premium paid was for one whole year.
It is not disputed that the preium was actually paid by Pinca to Adora on December 24, 1981, who received it on behalf of MICO, to which it was
remitted on January 15, 1982. What is questioned is the validity of Pinca's payment and of Adora's authority to receive it.
MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized to receive the premium payment on its behalf. It is
clearly provided in Section 306 of the Insurance Code that:
SEC. 306. xxx xxx xxx
Any insurance company which delivers to an insurance agant or insurance broker a policy or contract of insurance shall be
demmed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or
contract of insurance at the time of its issuance or delivery or which becomes due thereon.
And it is a well-known principle under the law of agency that:
Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such
payment is complete when the money delivered is into the agent's hands and is a discharge of the indebtedness owing to the
principal. 15
There is the petitioner's argument, however, that Adora was not authorized to accept the premium payment because six months had elapsed since the
issuance by the policy itself. It is argued that this prohibition was binding upon Pinca, who made the payment to Adora at her own riskl as she was
bound to first check his authority to receive it. 16
MICO is taking an inconsistent stand. While contending that acceptance of the premium payment was prohibited by the policy, it at the same time
insists that the policy never came into force because the premium had not been paid. One surely, cannot have his cake and eat it too.
We do not share MICO's view that there was no existing insurance at the time of the loss sustained by Pinca because her policy never became
effective for non-payment of premium. Payment was in fact made, rendering the policy operative as of June 22, 1981, and removing it from the
provisions of Article 77, Thereafter, the policy could be cancelled on any of the supervening grounds enumerated in Article 64 (except "nonpayment
of premium") provided the cancellation was made in accordance therewith and with Article 65.
Section 64 reads as follows:
SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured,
and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or
more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the hazard insured against;
(e) physical changes in the property insured which result in the property becoming uninsurable;or
(f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation
of this Code.
As for the method of cancellation, Section 65 provides as follows:
SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named
insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon
and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.

A valid cancellation must, therefore, require concurrence of the following conditions:

(1) There must be prior notice of cancellation to the insured; 17
(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned;18
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; 19
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the insurer will
furnish the facts on which the cancellation is based. 20
MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To support this assertion, it presented one of its
employees, who testified that "the original of the endorsement and credit memo" presumably meaning the alleged cancellation "were sent the
assured by mail through our mailing section" 21 However, there is no proof that the notice, assuming it complied with the other requisites mentioned
above, was actually mailed to and received by Pinca. All MICO's offers to show that the cancellation was communicated to the insured is its
employee's testimony that the said cancellation was sent "by mail through our mailing section." without more. The petitioner then says that its "stand
is enervated (sic) by the legal presumption of regularity and due performance of duty." 22 (not realizing perhaps that "enervated" means "debilitated"
not "strengthened").
On the other hand, there is the flat denial of Pinca, who says she never received the claimed cancellation and who, of course, did not have to prove
such denial Considering the strict language of Section 64 that no insurance policy shall be cancelled except upon prior notice, it behooved MICO's to
make sure that the cancellation was actually sent to and received by the insured. The presumption cited is unavailing against the positive duty
enjoined by Section 64 upon MICO and the flat denial made by the private respondent that she had received notice of the claimed cancellation.
It stands to reason that if Pinca had really received the said notice, she would not have made payment on the original policy on December 24, 1981.
Instead, she would have asked for a new insurance, effective on that date and until one year later, and so taken advantage of the extended period. The
Court finds that if she did pay on that date, it was because she honestly believed that the policy issued on June 7, 1981, was still in effect and she was
willing to make her payment retroact to July 22, 1981, its stipulated commencement date. After all, agent Adora was very accomodating and had
earlier told her "to call him up any time" she was ready with her payment on the policy earlier issued. She was obviously only reciprocating in kind
when she paid her premium for the period beginning July 22, 1981, and not December 24, 1981.
MICO's suggests that Pinca knew the policy had already been cancelled and that when she paid the premium on December 24, 1981, her purpose was
"to renew it." As this could not be done by the agent alone under the terms of the original policy, the renewal thereof did not legally bind MICO.
which had not ratified it. To support this argument, MICO's cites the following exchange:
Q: Now, Madam Witness, on December 25th you made the alleged payment. Now, my question is that, did it
not come to your mind that after the lapse of six (6) months, your policy was cancelled?
A: I have thought of that but the agent told me to call him up at anytime.
Q: So if you thought that your policy was already intended to revive cancelled policy?
A: Misleading, Your Honor.
Hearing Officer: The testimony of witness is that, she thought of that.
Q: I will revise the question. Now, Mrs. Witness, you stated that you thought the policy was cancelled. Now,
when you made the payment of December 24, 1981, your intention was to revive the policy if it was already
cancelled?
A: Yes, to renew it. 23
A close study of the above transcript will show that Pinca meant to renew the policy if it had really been already cancelled but not if it was stffl
effective. It was all conditional. As it has not been shown that there was a valid cancellation of the policy, there was consequently no need to renew it
but to pay the premium thereon. Payment was thus legally made on the original transaction and it could be, and was, validly received on behalf of the
insurer by its agent Adora. Adora. incidentally, had not been informed of the cancellation either and saw no reason not to accept the said payment.
The last point raised by the petitioner should not pose much difficulty. The valuation fixed in fire insurance policy is conclusive in case of total loss
in the absence of fraud, 24 which is not shown here. Loss and its amount may be determined on the basis of such proof as may be offered by the
insured, which need not be of such persuasiveness as is required in judicial proceedings. 25 If, as in this case, the insured files notice and preliminary
proof of loss and the insurer fails to specify to the former all the defects thereof and without unnecessary delay, all objections to notice and proof of
loss are deemed waived under Section 90 of the Insurance Code.

The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to the extent of Pinca's loss should be considered sufficient.
Notably,MICO submitted no evidence to the contrary nor did it even question the extent of the loss in its answer before the Insurance Commission. It
is also worth observing that Pinca's property was not the only building bumed in the fire that razed the commercial district of Lao-ang, Samar, on
January 18, 1982. 27
There is nothing in the Insurance Code that makes the participation of an adjuster in the assessment of the loss imperative or indespensable, as MICO
suggests. Section 325, which it cites, simply speaks of the licensing and duties of adjusters.
We see in this cases an obvious design to evade or at least delay the discharge of a just obligation through efforts bordering on bad faith if not plain
duplicity, We note that the motion for reconsideration was filed on the fifteenth day from notice of the decision of the Insurance Commission and that
there was a feeble attempt to show that the notice of denial of the said motion was not received on June 13, 1982, to further hinder the proceedings
and justify the filing of the petition with this Court fourteen days after June 18, 1982. We also look askance at the alleged cancellation, of which the
insured and MICO's agent himself had no knowledge, and the curious fact that although Pinca's payment was remitted to MICO's by its agent on
January 15, 1982, MICO sought to return it to Adora only on February 5, 1982, after it presumably had learned of the occurrence of the loss insured
against on January 18, 1982. These circumstances make the motives of the petitioner highly suspect, to say the least, and cast serious doubts upon its
candor and bona fides.
WHEREFORE, the petition is DENIED. The decision of the Insurance Commission dated April 10, 1981, and its Order of June 4, 1981, are
AFFIRMED in full, with costs against the petitioner. This decision is immediately executory.
SO ORDERED.
G.R. No. 119655 May 24, 1996
SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO, VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO
and ROSABELLA M. RORALDO, petitioners,
vs.
COURT OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE CO., INC., respondents.

BELLOSILLO, J.:p
May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?
On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE) issued Fire Insurance Policy No. 136171 in favor of Violeta R.
Tibay and/or Nicolas Roraldo on their two-storey residential building located at 5855 Zobel Street, Makati City, together with all their personal effects therein. The
insurance was for P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the total premium of P2,983.50, petitioner
Violeta Tibay only paid P600.00 thus leaving a considerable balance unpaid.
On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March 1987 Violeta Tibay paid the balance of the premium. On
the same day, she filed with FORTUNE a claim on the fire insurance policy. Her claim was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc.
(GASI), which immediately wrote Violeta requesting her to furnish it with the necessary documents for the investigation and processing of her claim. Petitioner
forthwith complied. On 28 March 1987 she signed a non-waiver agreement with GASI to the effect that any action taken by the companies or their representatives
in investigating the claim made by the claimant for his loss which occurred at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment
of the amount of actual cash value and loss, shall not waive or invalidate any condition of the policies of such companies held by said claimant, nor the rights of
either or any of the parties to this agreement, and such action shall not be, or be claimed to be, an admission of liability on the part of said companies or any of
1
them.

In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of Sec. 77
of the Insurance Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March 1988 Violets
and the other petitioners sued FORTUNE for damages in the amount of P600,000.00 representing the total coverage of
the fire insurance policy plus 12% interest per annum, P100,000.00 moral damages, and attorney's fees equivalent to
20% of the total claim.
On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value of the insured
building and personal properties in the amount of P600,000.00 plus interest at the legal rate of 6% per annum from the
filing of the complaint until full payment, and attorney's fees equivalent to 20% of the total amount claimed plus costs of
suit. 2
On 24 March 1995 the Court of Appeals reversed the court a quo by declaring FORTUNE not to be liable to plaintiffappellees therein but ordering defendant-appellant to return to the former the premium of P2,983.50 plus 12% interest
from 10 March 1987 until full payment. 3

Hence this petition for review with petitioners contending mainly that contrary to the conclusion of the appellate court,
FORTUNE remains liable under the subject fire insurance policy in spite of the failure of petitioners to pay their premium in
full.
We find no merit in the petition; hence, we affirm the Court of Appeals.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. 4 The consideration is the premium, which must be paid at the time and in
the way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms. 5
The pertinent provisions in the Policy on premium read
THIS POLICY OF INSURANCE WITNISSETH THAT only after payment to the Company in accordance
with Policy Condition No. 2 of the total premiums by the insured as stipulated above for the period
aforementioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the Property
herein described . . .
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the
premium has been fully paid to and duly receipted by the Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company
official, shall be deemed invalid and of no effect.
xxx xxx xxx
Except only in those specific cases where corresponding rules and regulations which are or may hereafter
be in force provide for the payment of the stipulated premiums in periodic installments at fixed
percentage, it is hereby declared, agreed and warranted that this policy shall be deemed effective, valid
and binding upon the Company only when the premiums therefor have actually been paid in full and duly
acknowledged in a receipt signed by any authorized official or representative/agent of the Company in
such manner as provided herein. (emphasis supplied). 6
Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only been partially paid
and the balance paid only after the peril insured against has occurred, the insurance contract did not take effect and the
insured cannot collect at all on the policy. This is fully supported by Sec. 77 of the Insurance Code which provides
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the premium thereof has been paid,
except in the case of a life or an industrial life policy whenever the grace period provision applies
(emphasis supplied).
Apparently the crux of the controversy lies in the phrase "unless and until the premium thereof has been paid." This leads
us to the manner of payment envisioned by the law to make the insurance policy operative and binding. For whatever
judicial construction may be accorded the disputed phrase must ultimately yield to the clear mandate of the law. The
principle that where the law does not distinguish the court should neither distinguish assumes that the legislature made no
qualification on the use of a general word or expression. In Escosura v. San Miguel Brewery, Inc., 7 the Court through Mr.
Justice Jesus G. Barrera, interpreting the phrase "with pay" used in connection with leaves of absence with pay granted to
employees, ruled
. . . the legislative practice seems to be that when the intention is to distinguish between full and partial
payment, the modifying term is used . . .
Citing C.A. No. 647 governing maternity leaves of married women in government, R. A. No. 679 regulating
employment of women and children, R.A. No. 843 granting vacation and sick leaves to judges of municipal courts
and justices of the peace, and finally, Art. 1695 of the New Civil Code providing that every househelp shall be
allowed four (4) days vacation each month, which laws simply stated "with pay," the Court concluded that it was
undisputed that in all these laws the phrase "with pay" used without any qualifying adjective meant that the
employee was entitled to full compensation during his leave of absence.

Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment of the premium due
and the express stipulation thereof to the contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and
Insurance Co., Inc. v. Woodworks, Inc. 8 where the Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the
trial court that partial payment of the premium made the policy effective during the whole period of the policy. In that case,
the insurance company commenced action against the insured for the unpaid balance on a fire insurance policy. In its
defense the insured claimed that nonpayment of premium produced the cancellation of the insurance contract. Ruling
otherwise the Court held
It is clear . . . that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and delivered
to appellant, and that on September 22 of the same year, the latter paid to the former the sum of
P3,000.00 on account of the total premium of P6,051.95 due thereon. There is, consequently, no doubt at
all that, as between the insurer and the insured, there was not only a perfected contract of insurance but a
partially performed one as far as the payment of the agreed premium was concerned. Thereafter the
obligation of the insurer to pay the insured the amount, for which the policy was issued in case the
conditions therefor had been complied with, arose and became binding upon it, while the obligation of the
insured to pay the remainder of the total amount of the premium due became demandable.
The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual scenario is
different. In Phoenix it was the insurance company that sued for the balance of the premium, i.e., it recognized and
admitted the existence of an insurance contract with the insured. In the case before us, there is, quite unlike in Phoenix, a
specific stipulation that (t)his policy . . . is not in force until the premium has been fully paid and duly receipted by the
Company . . . Resultantly, it is correct to say that in Phoenix a contract was perfected upon partial payment of the
premium since the parties had not otherwise stipulated that prepayment of the premium in full was a condition precedent
to the existence of a contract.
In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of the premium without
any other precondition to its enforceability as in the instant case, the insurer in effect had shown its intention to continue
with the existing contract of insurance, as in fact it was enforcing its right to collect premium, or exact specific performance
from the insured. This is not so here. By express agreement of the parties, no vinculum juris or bond of law was to be
established until full payment was effected prior to the occurrence of the risk insured against.
In Makati Tuscany Condominium Corp. v. Court of Appeals 9 the parties mutually agreed that the premiums could be paid
in installments, which in fact they did for three (3) years, hence, this Court refused to invalidate the insurance policy. In
giving effect to the policy, the Court quoted with approval the Court of Appeals
The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire premium.
Here, the parties . . . agreed to make the premiums payable in installments, and there is no pretense that
the parties never envisioned to make the insurance contract binding between them. It was renewed for
two succeeding years, the second and third policies being a renewal/replacement for the previous one.
And the insured never informed the insurer that it was terminating the policy because the terms were
unacceptable.
While it may be true that under Section 77 of the Insurance Code, the parties may not agree to make the
insurance contract valid and binding without payment of premiums, there is nothing in said section which
suggests that the parties may not agree to allow payment of the premiums in installment, or to consider
the contract as valid and binding upon
payment of the first premium. Otherwise we would allow the insurer to renege on its liability under the
contract, had a loss incurred (sic) before completion of payment of the entire premium, despite its
voluntary acceptance of partial payments, a result eschewed by basic considerations of fairness and
equity . . .
These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or implied, of prepayment
in full by the insurer: impliedly, by suing for the balance of the premium as in Phoenix, and expressly, by agreeing to make
premiums payable in installments as in Tuscany. But contrary to the stance taken by petitioners, there is no waiver
express or implied in the case at bench. Precisely, the insurer and the insured expressly stipulated that (t)his policy
including any renewal thereof and/or any indorsement thereon is not in force until the premium has been fully paid to and
duly receipted by the Company . . . and that this policy shall be deemed effective, valid and binding upon the Company
only when the premiums therefor have actually been paid in full and duly acknowledged.

Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the Insurance Code
the payment of partial premium by the assured in this particular instance should not be considered the payment required
by the law and the stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in trust by the
insurer until such time that the full amount has been tendered and duly receipted for. In other words, as expressly agreed
upon in the contract, full payment must be made before the risk occurs for the policy to be considered effective and in
force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the
fractional payment of premium. The insurance contract itself expressly provided that the policy would be effective only
when the premium was paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had
absolute freedom of choice whether or not to be insured by FORTUNE under the terms of its policy and they freely opted
to adhere thereto.
Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the intention of the
parties as expressed in the
policy. 10 Courts have no other function but to enforce the same. The rule that contracts of insurance will be construed in
favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain
agreement ambiguous and then construe it in favor of the insured. 11 Verily, it is elemental law that the payment of
premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner prescribed in the
policy as intended by the parties the policy is ineffective. Partial payment even when accepted as a partial payment will
not keep the policy alive even for such fractional part of the year as the part payment bears to the whole
payment. 12
Applying further the rules of statutory construction, the position maintained by petitioners becomes even more untenable.
The case of South Sea Surety and Insurance Company, Inc. v. Court Of Appeals, 13 speaks only of two (2) statutory
exceptions to the requirement of payment of the entire premium as a prerequisite to the validity of the insurance contract.
These exceptions are: (a) in case the insurance coverage relates to life or industrial life (health) insurance when a grace
period applies, and (b) when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment
being declared by law to be then conclusive evidence of the premium payment. 14
A maxim of recognized practicality is the rule that the expressed exception or exemption excludes others. Exceptio firmat
regulim in casibus non exceptis. The express mention of exceptions operates to exclude other exceptions; conversely,
those which are not within the enumerated exceptions are deemed included in the general rule. Thus, under Sec. 77, as
well as Sec. 78, until the premium is paid, and the law has not expressly excepted partial payments, there is no valid and
binding contract. Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on
the proceeds of the policy.
In the desire to safeguard the interest of the assured, it must not be ignored that the contract of insurance is primarily a
risk distributing device, a mechanism by which all members of a group exposed to a particular risk contribute premiums to
an insurer. From these contributory funds are paid whatever losses occur due to exposure to the peril insured against.
Each party therefore takes a risk: the insurer, that of being compelled upon the happening of the contingency to pay the
entire sum agreed upon, and the insured, that of parting with the amount required as premium, without receiving anything
therefor in case the contingency does not happen. To ensure payment for these losses, the law mandates all insurance
companies to maintain a legal reserve fund in favor of those claiming under their policies. 15 It should be understood that
the integrity of this fund cannot be secured and maintained if by judicial fiat partial offerings of premiums were to be
construed as a legal nexus between the applicant and the insurer despite an express agreement to the contrary. For what
could prevent the insurance applicant from deliberately or wilfully holding back full premium payment and wait for the risk
insured against to transpire and then conveniently pass on the balance of the premium to be deducted from the proceeds
of the insurance? Worse, what if the insured makes an initial payment of only 10%, or even 1%, of the required premium,
and when the risk occurs simply points to the proceeds from where to source the balance? Can an insurance company
then exist and survive upon the payment of 1%, or even 10%, of the premium stipulated in the policy on the basis that,
after all, the insurer can deduct from the proceeds of the insurance should the risk insured against occur?
Interpreting the contract of insurance stringently against the insurer but liberally in favor of the insured despite clearly
defined obligations of the parties to the policy can be carried out to extremes that there is the danger that we may, so to
speak, "kill the goose that lays the golden egg." We are well aware of insurance companies falling into the despicable
habit of collecting premiums promptly yet resorting to all kinds of excuses to deny or delay payment of just insurance
claims. But, in this case, the law is manifestly on the side of the insurer. For as long as the current Insurance Code
remains unchanged and partial payment of premiums is not mentioned at all as among the exceptions provided in Sees.
77 and 78, no policy of insurance can ever pretend to be efficacious or effective until premium has been fully paid.

And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business because by law the
insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for
its prompt payment and full satisfaction. 16 It must be emphasized here that all actuarial calculations and various
tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt
payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at
favorable rates. But once payment of premium is left to the whim and caprice of the insured, as when the courts tolerate
the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to
be paid even after the risk insured against has occurred, as petitioners have done in this case, on the principle that the
strength of the vinculum juris is not measured by any specific amount of premium payment, we will surely wreak havoc on
the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution
of risks and benefits between the insurer and the insured.
The terms of the insurance policy constitute the measure of the insurer's liability. In the absence of statutory prohibition to
the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with public policy. 17 The validity of these limitations is by
law passed upon by the Insurance Commissioner who is empowered to approve all forms of policies, certificates or
contracts of insurance which insurers intend to issue or deliver. That the policy contract in the case at bench was
approved and allowed issuance simply reaffirms the validity of such policy, particularly the provision in question.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals dated 24 March 1995 is
AFFIRMED.
SO ORDERED.

G.R. No. L-24833

September 23, 1968

FIELDMEN'S INSURANCE CO., INC., petitioner,

vs.
MERCEDES VARGAS VDA. DE SONGCO, ET AL. and COURT OF APPEALS,
respondents.
Jose S. Suarez for petitioner.
Eligio G. Lagman for respondents.

FERNANDO, J.:
An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape
liability under a common carrier insurance policy on the pretext that what was insured,
not once but twice, was a private vehicle and not a common carrier, the policy being
issued upon the insistence of its agent who discounted fears of the insured that his
privately owned vehicle might not fall within its terms, the insured moreover being "a
man of scant education," finishing only the first grade. So it was held in a decision of the
lower court thereafter affirmed by respondent Court of Appeals. Petitioner in seeking the
review of the above decision of respondent Court of Appeals cannot be so sanguine as to
entertain the belief that a different outcome could be expected. To be more explicit, we
sustain the Court of Appeals.
The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a
peculiar case. Federico Songco of Floridablanca, Pampanga, a man of scant education
being only a first grader ..., owned a private jeepney with Plate No. 41-289 for the year
1960. On September 15, 1960, as such private vehicle owner, he was induced by
Fieldmen's Insurance Company Pampanga agent Benjamin Sambat to apply for a
Common Carrier's Liability Insurance Policy covering his motor vehicle ... Upon paying an

annual premium of P16.50, defendant Fieldmen's Insurance Company, Inc. issued on

September 19, 1960, Common Carriers Accident Insurance Policy No. 45-HO- 4254 ... the
duration of which will be for one (1) year, effective September 15, 1960 to September
15, 1961. On September 22, 1961, the defendant company, upon payment of the
corresponding premium, renewed the policy by extending the coverage from October 15,
1961 to October 15, 1962. This time Federico Songco's private jeepney carried Plate No.
J-68136-Pampanga-1961. ... On October 29, 1961, during the effectivity of the renewed
policy, the insured vehicle while being driven by Rodolfo Songco, a duly licensed driver
and son of Federico (the vehicle owner) collided with a car in the municipality of
Calumpit, province of Bulacan, as a result of which mishap Federico Songco (father) and
Rodolfo Songco (son) died, Carlos Songco (another son), the latter's wife, Angelita
Songco, and a family friend by the name of Jose Manuel sustained physical injuries of
varying degree." 1
It was further shown according to the decision of respondent Court of Appeals: "Amor
Songco, 42-year-old son of deceased Federico Songco, testifying as witness, declared
that when insurance agent Benjamin Sambat was inducing his father to insure his
vehicle, he butted in saying: 'That cannot be, Mr. Sambat, because our vehicle is an
"owner" private vehicle and not for passengers,' to which agent Sambat replied: 'whether
our vehicle was an "owner" type or for passengers it could be insured because their
company is not owned by the Government and the Government has nothing to do with
their company. So they could do what they please whenever they believe a vehicle is
insurable' ... In spite of the fact that the present case was filed and tried in the CFI of
Pampanga, the defendant company did not even care to rebut Amor Songco's testimony
by calling on the witness-stand agent Benjamin Sambat, its Pampanga Field
Representative." 2
The plaintiffs in the lower court, likewise respondents here, were the surviving widow and
children of the deceased Federico Songco as well as the injured passenger Jose Manuel.
On the above facts they prevailed, as had been mentioned, in the lower court and in the
respondent Court of Appeals.1awphl.nt
The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law
Union and Rock Insurance Co., Ltd., 3 with Justice J. B. L. Reyes speaking for the Court. It
is now beyond question that where inequitable conduct is shown by an insurance firm, it
is "estopped from enforcing forfeitures in its favor, in order to forestall fraud or
imposition on the insured." 4
As much, if not much more so than the Qua Chee Gan decision, this is a case where the
doctrine of estoppel undeniably calls for application. After petitioner Fieldmen's
Insurance Co., Inc. had led the insured Federico Songco to believe that he could qualify
under the common carrier liability insurance policy, and to enter into contract of
insurance paying the premiums due, it could not, thereafter, in any litigation arising out
of such representation, be permitted to change its stand to the detriment of the heirs of
the insured. As estoppel is primarily based on the doctrine of good faith and the
avoidance of harm that will befall the innocent party due to its injurious reliance, the
failure to apply it in this case would result in a gross travesty of justice.
That is all that needs be said insofar as the first alleged error of respondent Court of
Appeals is concerned, petitioner being adamant in its far-from-reasonable plea that
estoppel could not be invoked by the heirs of the insured as a bar to the alleged breach

of warranty and condition in the policy. lt would now rely on the fact that the insured
owned a private vehicle, not a common carrier, something which it knew all along when
not once but twice its agent, no doubt without any objection in its part, exerted the
utmost pressure on the insured, a man of scant education, to enter into such a contract.
Nor is there any merit to the second alleged error of respondent Court that no legal
liability was incurred under the policy by petitioner. Why liability under the terms of the
policy 5 was inescapable was set forth in the decision of respondent Court of Appeals.
Thus: "Since some of the conditions contained in the policy issued by the defendantappellant were impossible to comply with under the existing conditions at the time and
'inconsistent with the known facts,' the insurer 'is estopped from asserting breach of
such conditions.' From this jurisprudence, we find no valid reason to deviate and
consequently hold that the decision appealed from should be affirmed. The injured
parties, to wit, Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and
medical expenses the defendant company was being made liable, were passengers of
the jeepney at the time of the occurrence, and Rodolfo Songco, for whose burial
expenses the defendant company was also being made liable was the driver of the
vehicle in question. Except for the fact, that they were not fare paying passengers, their
status as beneficiaries under the policy is recognized therein." 6
Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan
decision would reveal anew the weakness of petitioner's contention. Thus: "Moreover,
taking into account the well known rule that ambiguities or obscurities must be strictly
interpreted against the party that caused them, the 'memo of warranty' invoked by
appellant bars the latter from questioning the existence of the appliances called for in
the insured premises, since its initial expression, 'the undernoted appliances for the
extinction of fire being kept on the premises insured hereby, ... it is hereby warranted ...,'
admits of interpretation as an admission of the existence of such appliances which
appellant cannot now contradict, should the parol evidence rule apply." 7
To the same effect is the following citation from the same leading case: "This rigid
application of the rule on ambiguities has become necessary in view of current business
practices. The courts cannot ignore that nowadays monopolies, cartels and concentration
of capital, endowed with overwhelming economic power, manage to impose upon parties
dealing with them cunningly prepared 'agreements' that the weaker party may not
change one whit, his participation in the 'agreement' being reduced to the alternative to
'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats
d'adhesion), in contrast to those entered into by parties bargaining on an equal footing,
such contracts (of which policies of insurance and international bills of lading are prime
examples) obviously call for greater strictness and vigilance on the part of courts of
justice with a view to protecting the weaker party from abuses and imposition, and
prevent their becoming traps for the unwary (New Civil Code. Article 24; Sent. of
Supreme Court of Spain, 13 Dec. 1934, 27 February 1942)." 8
The last error assigned which would find fault with the decision of respondent Court of
Appeals insofar as it affirmed the lower court award for exemplary damages as well as
attorney's fees is, on its face, of no persuasive force at all.
The conclusion that inescapably emerges from the above is the correctness of the
decision of respondent Court of Appeals sought to be reviewed. For, to borrow once again
from the language of the Qua Chee Gan opinion: "The contract of insurance is one of

perfect good faith (uberima fides) not for the insured alone,but equally so for the insurer;
in fact, it is more so for the latter, since its dominant bargaining position carries with it
stricter responsibility." 9
This is merely to stress that while the morality of the business world is not the morality
of institutions of rectitude like the pulpit and the academe, it cannot descend so low as
to be another name for guile or deception. Moreover, should it happen thus, no court of
justice should allow itself to lend its approval and support.1awphl.nt
We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's
Insurance Co., Inc. It did not succeed in its persistent effort to avoid complying with its
obligation in the lower court and the Court of Appeals. Much less should it find any
receptivity from us for its unwarranted and unjustified plea to escape from its liability.
WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in
its entirety. Costs against petitioner Fieldmen's Insurance Co., Inc.
G.R. No. 154514. July 28, 2005
WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP
MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals
in CA-G.R. SP No. 60144, affirming the Decision2 dated May 3, 2000 of the Insurance
Commission in I.C. Adm. Case No. RD-277. Both decisions held that there was no
violation of the Insurance Code and the respondents do not need license as insurer and
insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity
coverage for its vessels from The Steamship Mutual Underwriting Association (Bermuda)
Limited (Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer).
Subsequently, White Gold was issued a Certificate of Entry and Acceptance.3 Pioneer also
issued receipts evidencing payments for the coverage. When White Gold failed to fully
pay its accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of
money to recover the latters unpaid balance. White Gold on the other hand, filed a
complaint before the Insurance Commission claiming that Steamship Mutual violated
Sections 1864 and 1875 of the Insurance Code, while Pioneer violated Sections 299, 6 3007
and 3018 in relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for
Steamship Mutual to secure a license because it was not engaged in the insurance

business. It explained that Steamship Mutual was a Protection and Indemnity Club (P & I
Club). Likewise, Pioneer need not obtain another license as insurance agent and/or a
broker for Steamship Mutual because Steamship Mutual was not engaged in the
insurance business. Moreover, Pioneer was already licensed, hence, a separate license
solely as agent/broker of Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its
decision, the appellate court distinguished between P & I Clubs vis--vis conventional
insurance. The appellate court also held that Pioneer merely acted as a collection agent
of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the
appellate court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT
DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS
TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED
NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY
EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT
SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF
RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER
AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER. 9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in
the insurance business in the Philippines? (2) Does Pioneer need a license as an
insurance agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does
not have a license to do business in the Philippines although Pioneer is its resident agent.
This relationship is reflected in the certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance
business. To buttress its assertion, it cites the definition of a P & I Club in Hyopsung
Maritime Co., Ltd. v. Court of Appeals10 as "an association composed of shipowners in
general who band together for the specific purpose of providing insurance cover on a
mutual basis against liabilities incidental to shipowning that the members incur in favor
of third parties." It stresses that as a P & I Club, Steamship Mutuals primary purpose is

to solicit and provide protection and indemnity coverage and for this purpose, it has
engaged the services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in
the insurance business in the Philippines. It is merely an association of vessel owners
who have come together to provide mutual protection against liabilities incidental to
shipowning.11 Respondents aver Hyopsung is inapplicable in this case because the issue
in Hyopsung was the jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance
business" or "transacting an insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and
not as merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized
as constituting the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing
in a manner designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions, or that no separate or direct
consideration is received therefor, shall not preclude the existence of an insurance
business.12
The test to determine if a contract is an insurance contract or not, depends on the nature
of the promise, the act required to be performed, and the exact nature of the agreement
in the light of the occurrence, contingency, or circumstances under which the
performance becomes requisite. It is not by what it is called.13
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.14
In particular, a marine insurance undertakes to indemnify the assured against marine
losses, such as the losses incident to a marine adventure.15 Section 9916 of the Insurance
Code enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members
are both the insurer and insured. In it, the members all contribute, by a system of
premiums or assessments, to the creation of a fund from which all losses and liabilities
are paid, and where the profits are divided among themselves, in proportion to their
interest.17 Additionally, mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and defense costs.18

A P & I Club is "a form of insurance against third party liability, where the third party is
anyone other than the P & I Club and the members."19 By definition then, Steamship
Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance
business.
The records reveal Steamship Mutual is doing business in the country albeit without the
requisite certificate of authority mandated by Section 18720 of the Insurance Code. It
maintains a resident agent in the Philippines to solicit insurance and to collect payments
in its behalf. We note that Steamship Mutual even renewed its P & I Club cover until it
was cancelled due to non-payment of the calls. Thus, to continue doing business here,
Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance
Commission.
Since a contract of insurance involves public interest, regulation by the State is
necessary. Thus, no insurer or insurance company is allowed to engage in the insurance
business without a license or a certificate of authority from the Insurance Commission. 21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration22 issued by the Insurance Commission. It has been licensed to do or transact
insurance business by virtue of the certificate of authority23 issued by the same agency.
However, a Certification from the Commission states that Pioneer does not have a
separate license to be an agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs a separate
license to act as insurance agent for Steamship Mutual. Section 299 of the Insurance
Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance,
any commission or other compensation from any insurance company doing business in
the Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner, which must be renewed annually on the first day of January, or within six
months thereafter. . .
Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of
its directors and officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of
the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance
Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting
Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED
to obtain licenses and to secure proper authorizations to do business as insurer and
insurance agent, respectively. The petitioners prayer for the revocation of Pioneers
Certificate of Authority and removal of its directors and officers, is DENIED. Costs against
respondents.
SO ORDERED.

G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.

MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life
insurance policy of a legally married man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd.,
Policy No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same
amount Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He
to her as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing
branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the
coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of
P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the
refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest
thereon due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated
beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were
merely living as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that
she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance
Co., Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April 29,
1970.
After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pretrial order was entered reading as follows: +.wph!1
During the pre-trial conference, the parties manifested to the court. that there is no
possibility of amicable settlement. Hence, the Court proceeded to have the parties
submit their evidence for the purpose of the pre-trial and make admissions for the
purpose of pretrial. During this conference, parties Carponia T. Ebrado and Pascuala
Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married
to Pascuala Ebrado with whom she has six (legitimate) namely; Hernando,
Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the
lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy
No. 009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the
rider for accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1
for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime
of Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, with
whom she had 2 children although he was not legally separated from his legal wife; 4)

that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3
and affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia
Ebrado filed claim with the Insular Life Assurance Co. which was contested by Pascuala
Ebrado who also filed claim for the proceeds of said policy 6) that in view ofthe adverse
claims the insurance company filed this action against the two herein claimants
Carponia and Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance
Co. as proceeds of the policy P11,745.73; 8) that the beneficiary designated by the
insured in the policy is Carponia Ebrado and the insured made reservation to change
the beneficiary but although the insured made the option to change the beneficiary,
same was never changed up to the time of his death and the wife did not have any
opportunity to write the company that there was reservation to change the designation
of the parties agreed that a decision be rendered based on and stipulation of facts as to
who among the two claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their simultaneous
memoranda from the receipt of this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T.
Ebrado disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and
directing the payment of the insurance proceeds to the estate of the deceased insured. The trial court
held: +.wph!1
It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction
for adultery or concubinage is not essential in order to establish the disqualification
mentioned therein. Neither is it also necessary that a finding of such guilt or commission
of those acts be made in a separate independent action brought for the purpose. The
guilt of the donee (beneficiary) may be proved by preponderance of evidence in the
same proceeding (the action brought to declare the nullity of the donation).
It is, however, essential that such adultery or concubinage exists at the time defendant
Carponia T. Ebrado was made beneficiary in the policy in question for the
disqualification and incapacity to exist and that it is only necessary that such fact be
established by preponderance of evidence in the trial. Since it is agreed in their
stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado
were living together as husband and wife without being legally married and that the
marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid
and still existing at the time the insurance in question was purchased there is no
question that defendant Carponia T. Ebrado is disqualified from becoming the
beneficiary of the policy in question and as such she is not entitled to the proceeds of
the insurance upon the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the
Appellate Court certified the case to Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance
Code (PD No. 612, as amended) does not contain any specific provision grossly resolutory of the
prime question at hand. Section 50 of the Insurance Act which provides that "(t)he insurance shag be
applied exclusively to the proper interest of the person in whose name it is made" 1 cannot be validly

seized upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that the provision refers only
to the "insured" and not to the beneficiary, since a contract of insurance is personal in character. 2 Otherwise, the
prohibitory laws against illicit relationships especially on property and descent will be rendered nugatory, as the same
could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be applied to resolve
this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is governed by
special laws. Matters not expressly provided for in such special laws shall be regulated by this Code." When not otherwise
specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the civil
law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a
donation to him. 4 Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the
new Civil Code provides: +.wph!1
The following donations shall be void:
1. Those made between persons who were guilty of adultery or concubinage at the time of donation;
Those made between persons found guilty of the same criminal offense, in consideration thereof;
3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same
action.
2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are
founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy
which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a
consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The
mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary
in the life insurance policy of the person who cannot make the donation. 5 Under American law, a policy of life insurance is
considered as a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect
of a clause designating the beneficiary by rules under which wins are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in
record to Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family
There is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones
should be enforced in life insurance policies since the same are based on similar consideration As above pointed out, a
beneficiary in a fife insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as
manage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon married
couple should likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these
legal disabilities, with more reason should an illicit relationship be restricted by these disabilities. Thus, in Matabuena v.
Cervantes, 7 this Court, through Justice Fernando, said: +.wph!1
If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court
(Court of Appeals), 'to prohibit donations in favor of the other consort and his descendants because of
and undue and improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient
law;" por-que no se enganen desponjandose el uno al otro por amor que han de consuno' (According to)
the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem spoliarentur'
the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to apply the
same prohibitive policy to persons living together as husband and wife without the benefit of nuptials. For
it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence
of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased.
Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such
donations should subsist, lest the condition 6f those who incurred guilt should turn out to be better.' So
long as marriage remains the cornerstone of our family law, reason and morality alike demand that the
disabilities attached to marriage should likewise attach to concubinage.
It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion
cannot stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a
laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be

differentiated the policy of the law which embodies a deeply rooted notion of what is just and what is right
would be nullified if such irregular relationship instead of being visited with disabilities would be attended
with benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is every any
occasion where the principle of statutory construction that what is within the spirit of the law is as much a
part of it as what is written, this is it. Otherwise the basic purpose discernible in such codal provision
would not be attained. Whatever omission may be apparent in an interpretation purely literal of the
language used must be remedied by an adherence to its avowed objective.
4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739
may effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at
the time of the donation," Article 739 itself provides: +.wph!1
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilty of the donee may be proved by preponderance of evidence in the same
action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it
cannot even be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that
the guilt of the party may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if
evidence preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is
not demanded.
In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been
conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon
and stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom
she has six legitimate children; that during his lifetime, the deceased insured was living with his common-law wife,
Carponia Ebrado, with whom he has two children. These stipulations are nothing less than judicial admissions which, as a
consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these admissions, a
judgment may be validly rendered without going through the rigors of a trial for the sole purpose of proving the illicit liaison
between the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered
based on this agreement and stipulation of facts as to who among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared
disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the
proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.

G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.

MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life
insurance policy of a legally married man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd.,
Policy No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same
amount Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He
to her as his wife.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing
branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the
coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of
P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the
refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest
thereon due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated
beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were
merely living as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that
she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance
Co., Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April 29,
1970.
After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pretrial order was entered reading as follows: +.wph!1
During the pre-trial conference, the parties manifested to the court. that there is no
possibility of amicable settlement. Hence, the Court proceeded to have the parties
submit their evidence for the purpose of the pre-trial and make admissions for the
purpose of pretrial. During this conference, parties Carponia T. Ebrado and Pascuala
Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married
to Pascuala Ebrado with whom she has six (legitimate) namely; Hernando,
Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the
lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy
No. 009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the
rider for accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1
for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime
of Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, with
whom she had 2 children although he was not legally separated from his legal wife; 4)
that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3
and affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia
Ebrado filed claim with the Insular Life Assurance Co. which was contested by Pascuala
Ebrado who also filed claim for the proceeds of said policy 6) that in view ofthe adverse
claims the insurance company filed this action against the two herein claimants
Carponia and Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance
Co. as proceeds of the policy P11,745.73; 8) that the beneficiary designated by the
insured in the policy is Carponia Ebrado and the insured made reservation to change
the beneficiary but although the insured made the option to change the beneficiary,
same was never changed up to the time of his death and the wife did not have any
opportunity to write the company that there was reservation to change the designation
of the parties agreed that a decision be rendered based on and stipulation of facts as to
who among the two claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their simultaneous
memoranda from the receipt of this order.
SO ORDERED.

On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T.
Ebrado disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and
directing the payment of the insurance proceeds to the estate of the deceased insured. The trial court
held: +.wph!1
It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction
for adultery or concubinage is not essential in order to establish the disqualification
mentioned therein. Neither is it also necessary that a finding of such guilt or commission
of those acts be made in a separate independent action brought for the purpose. The
guilt of the donee (beneficiary) may be proved by preponderance of evidence in the
same proceeding (the action brought to declare the nullity of the donation).
It is, however, essential that such adultery or concubinage exists at the time defendant
Carponia T. Ebrado was made beneficiary in the policy in question for the
disqualification and incapacity to exist and that it is only necessary that such fact be
established by preponderance of evidence in the trial. Since it is agreed in their
stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado
were living together as husband and wife without being legally married and that the
marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid
and still existing at the time the insurance in question was purchased there is no
question that defendant Carponia T. Ebrado is disqualified from becoming the
beneficiary of the policy in question and as such she is not entitled to the proceeds of
the insurance upon the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the
Appellate Court certified the case to Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance
Code (PD No. 612, as amended) does not contain any specific provision grossly resolutory of the
prime question at hand. Section 50 of the Insurance Act which provides that "(t)he insurance shag be
applied exclusively to the proper interest of the person in whose name it is made" 1 cannot be validly
seized upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that the provision refers only
to the "insured" and not to the beneficiary, since a contract of insurance is personal in character. 2 Otherwise, the
prohibitory laws against illicit relationships especially on property and descent will be rendered nugatory, as the same
could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be applied to resolve
this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is governed by
special laws. Matters not expressly provided for in such special laws shall be regulated by this Code." When not otherwise
specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the civil
law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a
donation to him. 4 Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the
new Civil Code provides: +.wph!1
The following donations shall be void:
1. Those made between persons who were guilty of adultery or concubinage at the time of donation;
Those made between persons found guilty of the same criminal offense, in consideration thereof;
3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same
action.
2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are
founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy
which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a
consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The
mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary
in the life insurance policy of the person who cannot make the donation. 5 Under American law, a policy of life insurance is
considered as a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect
of a clause designating the beneficiary by rules under which wins are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in
record to Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family
There is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones
should be enforced in life insurance policies since the same are based on similar consideration As above pointed out, a
beneficiary in a fife insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as
manage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon married
couple should likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these
legal disabilities, with more reason should an illicit relationship be restricted by these disabilities. Thus, in Matabuena v.
Cervantes, 7 this Court, through Justice Fernando, said: +.wph!1
If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court
(Court of Appeals), 'to prohibit donations in favor of the other consort and his descendants because of
and undue and improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient
law;" por-que no se enganen desponjandose el uno al otro por amor que han de consuno' (According to)
the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem spoliarentur'
the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to apply the
same prohibitive policy to persons living together as husband and wife without the benefit of nuptials. For
it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence
of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased.
Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such
donations should subsist, lest the condition 6f those who incurred guilt should turn out to be better.' So
long as marriage remains the cornerstone of our family law, reason and morality alike demand that the
disabilities attached to marriage should likewise attach to concubinage.
It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion
cannot stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a
laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be
differentiated the policy of the law which embodies a deeply rooted notion of what is just and what is right
would be nullified if such irregular relationship instead of being visited with disabilities would be attended
with benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is every any
occasion where the principle of statutory construction that what is within the spirit of the law is as much a
part of it as what is written, this is it. Otherwise the basic purpose discernible in such codal provision
would not be attained. Whatever omission may be apparent in an interpretation purely literal of the
language used must be remedied by an adherence to its avowed objective.
4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739
may effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at
the time of the donation," Article 739 itself provides: +.wph!1
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilty of the donee may be proved by preponderance of evidence in the same
action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it
cannot even be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that
the guilt of the party may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if
evidence preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is
not demanded.

In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been
conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon
and stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom
she has six legitimate children; that during his lifetime, the deceased insured was living with his common-law wife,
Carponia Ebrado, with whom he has two children. These stipulations are nothing less than judicial admissions which, as a
consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these admissions, a
judgment may be validly rendered without going through the rigors of a trial for the sole purpose of proving the illicit liaison
between the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered
based on this agreement and stipulation of facts as to who among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared
disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the
proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.

G.R. No. 181132

June 5, 2009

HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA

PANGILINAN MARAMAG, Petitioners,
vs.
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL
BRIAN DE GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE
ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, Respondents.
DECISION
NACHURA, J.:
This is a petition1 for review on certiorari under Rule 45 of the Rules, seeking to reverse
and set aside the Resolution2 dated January 8, 2008 of the Court of Appeals (CA), in CAG.R. CV No. 85948, dismissing petitioners appeal for lack of jurisdiction.
The case stems from a petition3 filed against respondents with the Regional Trial Court,
Branch 29, for revocation and/or reduction of insurance proceeds for being void and/or
inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary
injunction.
The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto
Maramag (Loreto), while respondents were Loretos illegitimate family; (2) Eva de
Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the
latter, thus, she is disqualified to receive any proceeds from his insurance policies from
Insular Life Assurance Company, Ltd. (Insular)4 and Great Pacific Life Assurance
Corporation (Grepalife);5 (3) the illegitimate children of LoretoOdessa, Karl Brian, and
Trisha Angeliewere entitled only to one-half of the legitime of the legitimate children,
thus, the proceeds released to Odessa and those to be released to Karl Brian and Trisha
Angelie were inofficious and should be reduced; and (4) petitioners could not be deprived
of their legitimes, which should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged,
among others, that part of the insurance proceeds had already been released in favor of
Odessa, while the rest of the proceeds are to be released in favor of Karl Brian and Trisha

Angelie, both minors, upon the appointment of their legal guardian. Petitioners also
prayed for the total amount of P320,000.00 as actual litigation expenses and attorneys
fees.
In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and
Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their
claims for the insurance proceeds of the insurance policies; that when it ascertained that
Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the
proceeds among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated
beneficiaries; and that it released Odessas share as she was of age, but withheld the
release of the shares of minors Karl Brian and Trisha Angelie pending submission of
letters of guardianship. Insular alleged that the complaint or petition failed to state a
cause of action insofar as it sought to declare as void the designation of Eva as
beneficiary, because Loreto revoked her designation as such in Policy No. A001544070
and it disqualified her in Policy No. A001693029; and insofar as it sought to declare as
inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering that no
settlement of Loretos estate had been filed nor had the respective shares of the heirs
been determined. Insular further claimed that it was bound to honor the insurance
policies designating the children of Loreto with Eva as beneficiaries pursuant to Section
53 of the Insurance Code.
In its own answer7 with compulsory counterclaim, Grepalife alleged that Eva was not
designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian,
and Trisha Angelie were denied because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was born on December 10, 1936 and,
thus, not more than 65 years old when he signed it in September 2001; that the case
was premature, there being no claim filed by the legitimate family of Loreto; and that the
law on succession does not apply where the designation of insurance beneficiaries is
clear.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to
petitioners, summons by publication was resorted to. Still, the illegitimate family of
Loreto failed to file their answer. Hence, the trial court, upon motion of petitioners,
declared them in default in its Order dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues
raised in their respective answers be resolved first. The trial court ordered petitioners to
comment within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and Grepalife was
purely legal whether the complaint itself was proper or not and that the designation
of a beneficiary is an act of liberality or a donation and, therefore, subject to the
provisions of Articles 7528 and 7729 of the Civil Code.
In reply, both Insular and Grepalife countered that the insurance proceeds belong
exclusively to the designated beneficiaries in the policies, not to the estate or to the
heirs of the insured. Grepalife also reiterated that it had disqualified Eva as a beneficiary
when it ascertained that Loreto was legally married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive portion of
which reads

WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life
and Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha
Maramag. The action shall proceed with respect to the other defendants Eva Verna de
Guzman, Insular Life and Grepalife.
SO ORDERED.10
In so ruling, the trial court ratiocinated thus
Art. 2011 of the Civil Code provides that the contract of insurance is governed by the
(sic) special laws. Matters not expressly provided for in such special laws shall be
regulated by this Code. The principal law on insurance is the Insurance Code, as
amended. Only in case of deficiency in the Insurance Code that the Civil Code may be
resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.)
The Insurance Code, as amended, contains a provision regarding to whom the insurance
proceeds shall be paid. It is very clear under Sec. 53 thereof that the insurance proceeds
shall be applied exclusively to the proper interest of the person in whose name or for
whose benefit it is made, unless otherwise specified in the policy. Since the defendants
are the ones named as the primary beneficiary (sic) in the insurances (sic) taken by the
deceased Loreto C. Maramag and there is no showing that herein plaintiffs were also
included as beneficiary (sic) therein the insurance proceeds shall exclusively be paid to
them. This is because the beneficiary has a vested right to the indemnity, unless the
insured reserves the right to change the beneficiary. (Grecio v. Sunlife Assurance Co. of
Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law on donations or the rules on
testamentary succession in order to defeat the right of herein defendants to collect the
insurance indemnity. The beneficiary in a contract of insurance is not the donee spoken
in the law of donation. The rules on testamentary succession cannot apply here, for the
insurance indemnity does not partake of a donation. As such, the insurance indemnity
cannot be considered as an advance of the inheritance which can be subject to collation
(Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon Employees Association v.
Juanita Golpeo, et al., the Honorable Supreme Court made the following
pronouncements[:]
"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs
exclusively to the defendant as his individual and separate property, we agree that the
proceeds of an insurance policy belong exclusively to the beneficiary and not to the
estate of the person whose life was insured, and that such proceeds are the separate
and individual property of the beneficiary and not of the heirs of the person whose life
was insured, is the doctrine in America. We believe that the same doctrine obtains in
these Islands by virtue of Section 428 of the Code of Commerce x x x."
In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no
sufficient cause of action against defendants Odessa, Karl Brian and Trisha Angelie
Maramag for the reduction and/or declaration of inofficiousness of donation as primary
beneficiary (sic) in the insurances (sic) of the late Loreto C. Maramag.
However, herein plaintiffs are not totally bereft of any cause of action. One of the named
beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his

concubine Eva Verna De Guzman. Any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life insurance policy of the
person who cannot make any donation to him, according to said article (Art. 2012, Civil
Code). If a concubine is made the beneficiary, it is believed that the insurance contract
will still remain valid, but the indemnity must go to the legal heirs and not to the
concubine, for evidently, what is prohibited under Art. 2012 is the naming of the
improper beneficiary. In such case, the action for the declaration of nullity may be
brought by the spouse of the donor or donee, and the guilt of the donor and donee may
be proved by preponderance of evidence in the same action (Comment of Edgardo L.
Paras, Civil Code of the Philippines, page 897). Since the designation of defendant Eva
Verna de Guzman as one of the primary beneficiary (sic) in the insurances (sic) taken by
the late Loreto C. Maramag is void under Art. 739 of the Civil Code, the insurance
indemnity that should be paid to her must go to the legal heirs of the deceased which
this court may properly take cognizance as the action for the declaration for the nullity of
a void donation falls within the general jurisdiction of this Court.11
Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the
main, that the petition failed to state a cause of action. Insular further averred that the
proceeds were divided among the three children as the remaining named beneficiaries.
Grepalife, for its part, also alleged that the premiums paid had already been refunded.
Petitioners, in their comment, reiterated their earlier arguments and posited that
whether the complaint may be dismissed for failure to state a cause of action must be
determined solely on the basis of the allegations in the complaint, such that the
defenses of Insular and Grepalife would be better threshed out during trial.1avvphi1
On June 16, 2005, the trial court issued a Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed
by defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of
the Resolution of this Court dated 21 September 2004 which ordered the prosecution of
the case against defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby
SET ASIDE, and the case against them is hereby ordered DISMISSED.
SO ORDERED.14
In granting the motions for reconsideration of Insular and Grepalife, the trial court
considered the allegations of Insular that Loreto revoked the designation of Eva in one
policy and that Insular disqualified her as a beneficiary in the other policy such that the
entire proceeds would be paid to the illegitimate children of Loreto with Eva pursuant to
Section 53 of the Insurance Code. It ruled that it is only in cases where there are no
beneficiaries designated, or when the only designated beneficiary is disqualified, that the
proceeds should be paid to the estate of the insured. As to the claim that the proceeds to
be paid to Loretos illegitimate children should be reduced based on the rules on
legitime, the trial court held that the distribution of the insurance proceeds is governed
primarily by the Insurance Code, and the provisions of the Civil Code are irrelevant and
inapplicable. With respect to the Grepalife policy, the trial court noted that Eva was
never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha Angelie; thus,
it upheld the dismissal of the case as to the illegitimate children. It further held that the
matter of Loretos misrepresentation was premature; the appropriate action may be filed

only upon denial of the claim of the named beneficiaries for the insurance proceeds by
Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal
for lack of jurisdiction, holding that the decision of the trial court dismissing the
complaint for failure to state a cause of action involved a pure question of law. The
appellate court also noted that petitioners did not file within the reglementary period a
motion for reconsideration of the trial courts Resolution, dated September 21, 2004,
dismissing the complaint as against Odessa, Karl Brian, and Trisha Angelie; thus, the said
Resolution had already attained finality.
Hence, this petition raising the following issues:
a. In determining the merits of a motion to dismiss for failure to state a cause of
action, may the Court consider matters which were not alleged in the Complaint,
particularly the defenses put up by the defendants in their Answer?
b. In granting a motion for reconsideration of a motion to dismiss for failure to
state a cause of action, did not the Regional Trial Court engage in the examination
and determination of what were the facts and their probative value, or the truth
thereof, when it premised the dismissal on allegations of the defendants in their
answer which had not been proven?
c. x x x (A)re the members of the legitimate family entitled to the proceeds of the
insurance for the concubine?15
In essence, petitioners posit that their petition before the trial court should not have
been dismissed for failure to state a cause of action because the finding that Eva was
either disqualified as a beneficiary by the insurance companies or that her designation
was revoked by Loreto, hypothetically admitted as true, was raised only in the answers
and motions for reconsideration of both Insular and Grepalife. They argue that for a
motion to dismiss to prosper on that ground, only the allegations in the complaint should
be considered. They further contend that, even assuming Insular disqualified Eva as a
beneficiary, her share should not have been distributed to her children with Loreto but,
instead, awarded to them, being the legitimate heirs of the insured deceased, in
accordance with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial courts finding that the petition
failed to state a cause of action, as provided in Rule 16, Section 1(g), of the Rules of
Court, which reads
SECTION 1. Grounds. Within the time for but before filing the answer to the complaint
or pleading asserting a claim, a motion to dismiss may be made on any of the following
grounds:
xxxx
(g) That the pleading asserting the claim states no cause of action.

A cause of action is the act or omission by which a party violates a right of another. 16 A
complaint states a cause of action when it contains the three (3) elements of a cause of
action(1) the legal right of the plaintiff; (2) the correlative obligation of the defendant;
and (3) the act or omission of the defendant in violation of the legal right. If any of these
elements is absent, the complaint becomes vulnerable to a motion to dismiss on the
ground of failure to state a cause of action.17
When a motion to dismiss is premised on this ground, the ruling thereon should be based
only on the facts alleged in the complaint. The court must resolve the issue on the
strength of such allegations, assuming them to be true. The test of sufficiency of a cause
of action rests on whether, hypothetically admitting the facts alleged in the complaint to
be true, the court can render a valid judgment upon the same, in accordance with the
prayer in the complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there is no
hypothetical admission of the veracity of the allegations if:
1. the falsity of the allegations is subject to judicial notice;
2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations appear unfounded; or
5. there is evidence which has been presented to the court by stipulation of the
parties or in the course of the hearings related to the case.18
In this case, it is clear from the petition filed before the trial court that, although
petitioners are the legitimate heirs of Loreto, they were not named as beneficiaries in the
insurance policies issued by Insular and Grepalife. The basis of petitioners claim is that
Eva, being a concubine of Loreto and a suspect in his murder, is disqualified from being
designated as beneficiary of the insurance policies, and that Evas children with Loreto,
being illegitimate children, are entitled to a lesser share of the proceeds of the policies.
They also argued that pursuant to Section 12 of the Insurance Code, 19 Evas share in the
proceeds should be forfeited in their favor, the former having brought about the death of
Loreto. Thus, they prayed that the share of Eva and portions of the shares of Loretos
illegitimate children should be awarded to them, being the legitimate heirs of Loreto
entitled to their respective legitimes.
It is evident from the face of the complaint that petitioners are not entitled to a favorable
judgment in light of Article 2011 of the Civil Code which expressly provides that
insurance contracts shall be governed by special laws, i.e., the Insurance Code. Section
53 of the Insurance Code states
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of
the person in whose name or for whose benefit it is made unless otherwise specified in
the policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance
proceeds are either the insured, if still alive; or the beneficiary, if the insured is already

deceased, upon the maturation of the policy.20 The exception to this rule is a situation
where the insurance contract was intended to benefit third persons who are not parties
to the same in the form of favorable stipulations or indemnity. In such a case, third
parties may directly sue and claim from the insurer. 21
Petitioners are third parties to the insurance contracts with Insular and Grepalife and,
thus, are not entitled to the proceeds thereof. Accordingly, respondents Insular and
Grepalife have no legal obligation to turn over the insurance proceeds to petitioners. The
revocation of Eva as a beneficiary in one policy and her disqualification as such in
another are of no moment considering that the designation of the illegitimate children as
beneficiaries in Loretos insurance policies remains valid. Because no legal proscription
exists in naming as beneficiaries the children of illicit relationships by the insured, 22 the
shares of Eva in the insurance proceeds, whether forfeited by the court in view of the
prohibition on donations under Article 739 of the Civil Code or by the insurers themselves
for reasons based on the insurance contracts, must be awarded to the said illegitimate
children, the designated beneficiaries, to the exclusion of petitioners. It is only in cases
where the insured has not designated any beneficiary,23 or when the designated
beneficiary is disqualified by law to receive the proceeds,24 that the insurance policy
proceeds shall redound to the benefit of the estate of the insured.
In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld.
In the same light, the Decision of the CA dated January 8, 2008 should be sustained.
Indeed, the appellate court had no jurisdiction to take cognizance of the appeal; the
issue of failure to state a cause of action is a question of law and not of fact, there being
no findings of fact in the first place.25
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.
SO ORDERED.